Five years ago, Sportify Inc. issued a 20-year bond with an annual coupon rate of 12% to finance its $60 million oversea expansion (assume coupons are paid annually in this question). Because of the decreasing interest rates, it is considering the possibility of replacing it by a new 7% bond. To call the old bond, Sportify must pay the par value plus 3 annual coupons. The total flotation costs on the new issues are expected to be $1 million. The new bond will have to be issued one month before the old bondis called. During the overlap period, the proceeds from the new bond will earn 0.4% per month. The company’s tax rate is 20%. Calculate the NPV of the proposed refunding

Five years ago, Sportify Inc. issued a 20-year bond with an annual coupon rate of 12% to finance its $60 million oversea expansion (assume coupons are paid annually in this question). Because of the decreasing interest rates, it is considering the possibility of replacing it by a new 7% bond. To call the old bond, Sportify must pay the par value plus 3 annual coupons. The total flotation costs on the new issues are expected to be $1 million. The new bond will have to be issued one month before the old bondis called. During the overlap period, the proceeds from the new bond will earn 0.4% per month. The company’s tax rate is 20%. Calculate the NPV of the proposed refunding

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 19P

See similar textbooks

Similar questions

Five years ago, Sportify Inc. issued a 20-year bond with an annual coupon rate of 12% to finance its $60 million oversea expansion (assume coupons are paid annually in this question). Because of the decreasing interest rates, it is considering the possibility of replacing it by a new 7% bond. To call the old bond, Sportify must pay the par value plus 3 annual coupons. The total flotation costs on the new issues are expected to be $1 million. The new bond will have to be issued one month before the old bond is called. During the overlap period, the proceeds from the new bond will earn 0.4% per month. The company’s tax rate is 20%. Calculate the NPV of the proposed refunding. dont use excel and show proper working
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.5%, payable annually, and a par value of $1,000. The 1-year interest rate is 6.5%. Next year, there is a 35% probability that interest rates will increase to 8% and a 65% probability that they will fall to 5%. If the company decides instead to make the bonds callable in one year, what coupon will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon.
U.S. Delay Corporation, a subsidiary of the postal service, must decide whether to issue zero coupon bonds or quarterly payment bonds to fund construction of new facilities. The $1,000 par value quarterly payment bonds would sell at $795.54, have a 4.50% coupon rate, and mature in 10 years. At what price would the zero coupon bonds with a maturity of 10 years have to sell to earn the same effective annual rate (or bond yield) as the quarterly payment bonds?
Corral Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 8.5 percent, payable annually. The one-year interest rate is 8.5 percent. Next year, there is a 40 percent probability that interest rates will increase to 10 percent, and there is a 60 percent probability that they will fall to 6 percent. If the company decides instead to make the bonds callable in one year, what coupon will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. a) 8.12% b) 8.77% c) 8.59% d) 8.35%
Setrakian Industries needs to raise $71.8 million to fund a new project. The company will sell bonds that have a coupon rate of 5.78 percent paid semiannually and that mature in 25 years. The bonds will be sold at an initial YTM of 6.46 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds?
Rockne, Inc. is planning to fund a project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding of interest, what will be the price of these bonds if the appropriate discount rate is 8 percent? (Round your answer to the nearest dollar.)
Oriole Real Estate Company management is planning to fund a development project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding, what will be the price of these bonds if the appropriate discount rate is 14.2 percent?
Heer
Orange Ltd is a AAA credit rating company and plans to raise new capital for its new project. The company will use both debt and equity instruments to fund the new project. Orange Ltd will issue 100 new units, 10-year bonds, each bond with a face value of $1000. Each bond will pay a 10% per annum coupon to be paid semi-annually. Currently each bond can be purchased at a price of $950. Previously, Orange Ltd had never issue bonds. Orange Ltd will issue 100 new units of ordinary shares to add to the current 900 units. The current share has a price of $30 each with last year’s dividend at $1.50 per share. The growth rate for earnings and dividends is estimated to be 10% per annum. Orange Ltd will issue 200 new units of preference shares is currently selling at $45 per share to add to the current 800 shares. The preference shares carry a yearly dividend of $4.00 per share. The flotation costs are 1% of the selling price for the preference shares. The relevant corporate tax rate is 30%.…
Orange Ltd is a AAA credit rating company and plans to raise new capital for its new project. The company will use both debt and equity instruments to fund the new project. Orange Ltd will issue 100 new units, 10-year bonds, each bond with a face value of $1000. Each bond will pay a 10% per annum coupon to be paid semi-annually. Currently each bond can be purchased at a price of $950. Previously, Orange Ltd had never issue bonds. Orange Ltd will issue 100 new units of ordinary shares to add to the current 900 units. The current share has a price of $30 each with last year’s dividend at $1.50 per share. The growth rate for earnings and dividends is estimated to be 10% per annum. Orange Ltd will issue 200 new units of preference shares is currently selling at $45 per share to add to the current 800 shares. The preference shares carry a yearly dividend of $4.00 per share. The flotation costs are 1% of the selling price for the preference shares. The relevant corporate tax rate is 30%.…
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 7 percent, payable annually, and a par value of $1,000. The one-year interest rate is 7 percent. Next year, there is a 40 percent probability that interest rates will increase to 9 percent and a 60 percent probability that they will fall to 6 percent. a. What will the market value of these bonds be if they are noncallable? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the company decides instead to make the bonds callable in one year, what coupon rate will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What will be the value of the call provision to the company? (Do not round…
Setrakian Industries needs to raise $69.5 million to fund a new project. The company will sell bonds that have a coupon rate of 5.76 percent paid semiannually and that mature in 20 years. The bonds will be sold at an initial YTM of 6.43 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds? (Round your intermediate calculations to two decimal places and final answer to the nearest whole number.) 2. 3 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Effective Annual Interest Rate Bond Pricing +) Ready