WTCC Corp. needs to raise 24,000,000 dollars by issuing bonds.Yields on government paper are as follows:YTM onGovernmentPaper3.1%Very shortOther details for WTCC debt are:Face ValueYears Until MaturityCoupon RateB Between 1,000 and 2,000C Between 2,000 and 3,000D Between 3,000 and 5,00040,0004.2%The CFO likes the Long maturity.It appears that a spread of 3.3% is required by potential bondholders.178.0%Short7.2%IntermediatePlease compute the price potential investors would pay for a bond.How many bonds would WTCC have to sell (issue) to raise 24,000,000dollars?(Hint: round up: for instance, 500.000001 bonds rounds up to 501 bonds.)A Between 500 and 1,0008.5%Long

WTCC Bond Pricing and Issuance1. Calculate the yield to maturity (YTM):Since the CFO prefers a long…

Answered: WTCC Corp. needs to raise 24,000,000…

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

See similar textbooks

Similar questions

The outstanding debt of Berstin Corp. has ten years to maturity, a current yield of 6%, and a price of $80. What is the pretax cost of debt if the tax rate is 30%. Note: The current yield of a bond is its annual coupon divided by its price. A. 4.65% B. 6% OC. 6.2% OD. 7.75%
A company has an obligation to pay 2,000,000€ in four years. The financial manager of the company wants to build a portfolio of bonds so that, whether interest rates rise or fall, the portfolio can pay off the abovementioned obligation. Suppose only the three following bonds are available to be chosen: - Coupon bonds with a face value of 1,000€ that mature in 6 years and pay an annual coupon of 6%. - Zero-coupon bonds with a maturity value of 1,000€ that mature in 3 years. - Coupon bonds with a face value of 1,000€, annual coupon of 7% that is paid semiannually and maturity in two years and a half. Determine the exact composition of the portfolio of bonds that guarantees the payment of 2,000,000€ in four years setting a proportion of 20% for zero-coupon bonds and assuming an annual effective yield to maturity of 5%
(Cost of debt) Sincere Stationery Corporation needs to raise $508,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10.2 percent with interest paid semiannually and a 10-year maturity. Investors require a rate of return of 7.1 percent. a. Compute the market value of the bonds. b. How many bonds will the firm have to issue to receive the needed funds? c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?
Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 89 basis points (0.89%). Your firm's five-year has semi-annual coupons and a coupon rate of 6%. You see that new five-year Government of Canada bonds are being issued with a YTM of 3%. What should the price of your outstanding five-year bonds be? Assume a par value of $100. The price of your outstanding five-year bonds should be $ (Round to the nearest cent.)
The coupon rate on an issue of debt is 9%. The yield to maturity on this issue is 12%. The corporate tax rate is 33 %. What would be the approximate after-tax cost of debt for a new issue of bonds? Note: Round your answer to 2 decimal places.
Eastern Bank Limited (EBL) has issued a12% Semi-annual Corporate Bond of Tk. 1000 for 8 years. The YTM is 10%. Required: i. Market Price of Bond. ii. One year from now, investors has realized the bond when YTM has decreased to 8% and the reinvestment rate is 10%. What would be the realized compound yield?
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below. Coupon Rate Maturity Face Value $ 8.90% Bond 1 2 3 6.80 8.60 9.20 Aftertax cost of debt Price Quote 106.8 93.4 105.8 96.5 % 4 years 6 years 14.5 years 25 years If the corporate tax rate is 25 percent, what is the aftertax cost of the company's debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 28,000,000 31,000,000 36,000,000 55,000,000
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. Bond 1 2 3 4 Coupon Rate Price Quote 5.1% 6.7 Cost of debt 6.6 5.9 104.86 113.62 112.17 101.41 Maturity 5 years 8 years 15.5 years 25 years % Face Value $ If the corporate tax rate is 24 percent, what is the aftertax cost of the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 59,000,000 54,000,000 74,000,000 81,000,000
(Cost of debt) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10 percent with interest paid semiannually and a 10-year maturity. Investors require a rate of return of 9 percent. a. Compute the market value of the bonds. b. How many bonds will the firm have to issue to receive the needed funds? c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?
(Cost of debt) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 14 percent and a maturity of 10 years. The investors require a rate of return of 9 percent. a. Compute the market value of the bonds b. What will the net price be if flotation costs are 10.5 percent of the market price? c. How many bonds will the firm have to issue to receive the needed funds? d. What is the firm's after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 21 percent? e. Rework the problem as follows: Assume a coupon rate of 8 percent. f. What effect does changing the coupon rate have on the firm's after-tax cost of capital? Why is there a change? GUD a. If the bond's annual coupon rate is 14%, what is the market value of the bond? (Round to the nearest cent.) b. What will the net price be if flotation costs are 10.5 percent of the market price? (Round to…
Inventive Response has bonds outstanding that mature in 8.5 years, have a 4 percent coupon, and pay interest annually. These bonds have a face value of $1,000 and a current market price of $1,180.30. What is the company’s after-tax cost of debt if its tax rate is 21 percent? 1.35 percent 1.70 percent 2.15 percent 2.65 percent 3.40 percent
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below. Coupon Rate 8.80% Face Value $ 22,000,000 36,000,000 41,000,000 56,000,000 Bond 1 2 3 4 6.80 8.50 9.00 Aftertax cost of debt Price Quote 106.3 94.1 105.1 94.9 If the corporate tax rate is 23 percent, what is the aftertax cost of the company's debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. % Maturity 4 years 7 years 14.5 years 24 years

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS