Hollydale's will issue an additional 5,000 bonds with the help of an investment banker. The bonds will be semiannual bonds with a maturity of thirty years. The coupon rate will be 8% and the par value $1,000. These bonds will be sold at $851.86 in the market, but the investment banker will receive a 4% commission on the sold bonds. The original bonds have sixteen years to maturity and are semiannual, with a coupon rate of 7.5% and a price of $874.08. There are 10,000 bonds outstanding with this senior issue. What is the new cost of capital for Hollydale's if the company still has 500,000 shares outstanding selling at $21.25 with an annual dividend growth rate of 2% and the last annual dividend of $2.50? The tax rate remains at 35%. 10.5% 11.4% 8.76% 9.64% 9.18%

Hollydale's will issue an additional 5,000 bonds with the help of an investment banker. The bonds will be semiannual bonds with a maturity of thirty years. The coupon rate will be 8% and the par value $1,000. These bonds will be sold at $851.86 in the market, but the investment banker will receive a 4% commission on the sold bonds. The original bonds have sixteen years to maturity and are semiannual, with a coupon rate of 7.5% and a price of $874.08. There are 10,000 bonds outstanding with this senior issue. What is the new cost of capital for Hollydale's if the company still has 500,000 shares outstanding selling at $21.25 with an annual dividend growth rate of 2% and the last annual dividend of $2.50? The tax rate remains at 35%. 10.5% 11.4% 8.76% 9.64% 9.18%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A Boba Drinks LLC. is considering to issue perpetual, callable bonds with a coupon rate of 5% paid annually, and a par value of $1,000. The nominal interest rate on these bonds will be 8% for the next year. Within a year, the nominal rate on the bonds will be either 12% with probability 0.7, or 9% with probability 0.3. The bonds are callable at $1400. If the bonds are called and the interest rate decreases, what is the price of the callable bond today?
Claire Corporation is planning to issue bonds with a face value of $170,000 and a coupon rate of 10 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Claire uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 12 percent.(FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use appropriate factor(s) from the tables provided. 3. What bonds payable amount will Claire report on this year's December 31 balance sheet? Note: Round your final answer to nearest whole dollar amount. × Answer is complete but not entirely correct. Long-term liabilities Bonds payable Bond discount CLAIRE CORPORATION Balance Sheet (Partial) At December 31 $ $ 170,000 0 × $ 0
Serotta Corporation is planning to issue bonds with a face value of $440,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) 1. Provide the journal entry to record the issuance of the bonds January 1.
The Latham Corporation is planning on issuing bonds that pay no interest but can be converted into $1,000 at maturity, 7 years from their purchase. To price these bonds competitively with other bonds of equal risk, it is determined that they should yield 6 percent, compounded annually. At what price should the Latham Corporation sell these bonds?
Denzel Corporation is planning to issue bonds with a face value of $600,000 and a coupon rate of 7.5 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Denzel uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8.5 percent (FV of $1. PV of $1. FVA of $1, and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required: 1. and 2. Prepare the journal entries to record the issuance of the bonds and interest payment on June 30 of this year. 3. What bonds payable amount will Denzel report on its June 30 balance sheet? Complete this question by entering your answers in the tabs below. Required 1 and 2 Required 3 1. and 2. Prepare the journal entries to record the issuance of the bonds and interest payment on June 30 of this year. (If no entry is required for a transaction/event, select "No journal…
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A corporation has an obligation to pay 100, 000 at the end of two years and another 100, 000 at the end of three years. There are two bonds available to buy and try to match these liabilities. The first bond is a two-year bond with annual coupons at rate 20%, and the second bond is a three-year bondwith annual coupons at 40%. The yield rates on both bonds and reinvestment rates for each of thenext three years are all at an annual effective rate of 25%. The corporation purchases α face amountof the two-year bond and β face amount of the three-year bond. The coupon received at time oneis reinvested, and any excess of bond payment over 100, 000 at time 2 is reinvested. The reinvestedamount along with the bond payments at time three are exactly enough to pay the 100, 000 due attime three. Find the minimum value of α that will guarantee that the asset cashflow available at time two is at least 100, 000. Show your work.
Rivera Inc. is considering the issuance of $500,000 face value, ten-year term bonds. The bonds will pay 10% interest each December 31. The current market rate is 10%; therefore, the bonds will be issued at face value. I need help calculating the issue price of the bonds given interest is paid annually but that the market rate of interest is 8%; the nominal rate is still 10%.
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Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments and a par value of $1, 000. The bonds are callable at $1, 230. One year interest rates are 8 percent. There is a 60 percent probability that long-term interest rates one year from today will be 10 percent, and a 40 percent probability that they will be 8 percent. Assume that if interest rates fall the bonds will be called. What coupon rate should the bonds have in order to sell at par value? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments and a par value of $1,000. The bonds are callable at $1,250. One-year interest rates are 12 percent. There is a 60 percent probability that long-term interest rates one year from today will be 13 percent, and a 40 percent probability that they will be 11 percent. Assume that if interest rates fall the bonds will be called. What coupon rate should the bonds have in order to sell at par value? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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