If Smolinski, Incorporated, were an all-equity company, it would have a beta of 1.20. Thecompany has a target debt-equity ratio of 70. The expected return on the marketportfolio is 10 percent and Treasury bills currently yield 3.5 percent. The company hasone bond issue outstanding that matures in 30 years, a par value of $1,000, and acoupon rate of 6.4 percent. The bond currently sells for $1,070. The corporate tax rate is22 percent.a. What is the company's cost of debt? (Do not round intermediate calculations andenter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b. What is the company's cost of equity? (Do not round intermediate calculations andenter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c. What is the company's weighted average cost of capital? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2 decimal places, e.g.,32.16.)a. Cost of debt.b. Cost of equityc. WACC5.00%11.30 %8.71%

Cost of capital:The cost of capital is a fundamental concept in finance that refers to the price…

Answered: If Smolinski, Incorporated, were an…

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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Company Z's bonds currently sell for $1233 and have a par value of $1,000. They pay a $110 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,350. What is their yield to call (YTC)?
I need all subparts please .
Copper Corp. has an outstanding bond issue that is currently selling for $1,073.95. The yield to maturity is 10.7%, and the bonds mature in 9 years. Assuming that the face value is $1000 and the bonds pay a semi-annual coupon, what is the current yield on the bonds? 7.8% 13.4% 11.2% 8.9%
Assets, Incorporated, plans to issue $6 million of bonds with a coupon rate of 7.8 percent, a par value of $1,000, semiannual coupons, and 25 years to maturity. The current market interest rate on these bonds is 7.1 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral. a. If the bonds are noncallable, what is the price of the bonds today?
Ezzell Enterprises' noncallable bonds currently sell for $1,218.00. They have a 5-year maturity, semi-annual coupon rate of 12.00%, and a par value of $1000. What is the bond's capital gain or loss yield?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
GrowthSec Ltd has raised $10M in debt funding by issuing 100 5 year bonds with a face value of $100,000 each. The bonds pay semi-annual coupons at 6% p.a. If the yield to maturity is 7% p.a., what will be the price of each bond? If after one year the bond is trading at a premium, what must have happened to market interest rates? Why has this impacted the bond price?
Consider the case of Badger Corp.: Badger Corp. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,220.35. However, Badger Corp. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Badger Corp.'s bonds? YTM YTC Value If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Badger Corp.'s bonds? 13 years 10 years 5 years 8 years If Badger Corp. issued new bonds today, the coupon rate must be for the bonds have to be issued at par.
Big Door Company has 8.7 million shares outstanding, which are currently trading for about $13 per share and have a levered equity beta of 1.2. Big Door has 19,900 outstanding bonds, with a 4% coupon rate, payable semi-annually and due in 10 years. The bonds are rated BBB. Currently the credit spread for BBB is 178 basis points over equivalent-maturity Government of Canada debt. The current yield on 10-year Canada bonds is 5%, compounded semi-annually. The risk-free interest rate is 2%, and the market risk premium is 6.6%. The company has a 35% tax rate. (Do not round intermediate calculations.) a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.) Pleveret Pdebtx (1–Tc)×D/E BU 1+(1–Tc)×D/E es Unlevered beta c. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round…
Old Business Ventures Inc. has an outstanding perpetual bond with an 5.8 percent coupon rate that can be called in one year. The bonds make annual coupon payments. The call premium is set at $104 over par value. There is a 40 percent chance that the interest rate in one year will be 6.8 percent and a 60 percent chance that the interest rate will be 3.8 percent. If the current interest rate is 5.8 percent, what is the current market price of the bond? What will be the value of the call provision? (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) Price of the bond Value of the call provision $ $

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