Chapter 11, Problem 2P

On April 1, 2014, Fredriksen Corp. sold a $700 million bond issue to finance the purchase of a new distribution facility. These bonds were issued in $1,000 denominations with a maturity date of April 1, 2034. The bonds have a coupon rate of 8.00% with interest paid semiannually. Required: a) Determine the value today April 1, 2024 of one of these bonds to an investor who requires a 12 percent return on these bonds. Why is the value today different from the par value? b) Assume that the bonds are selling for $925.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean. c) Explain what layers or textures of risk play a role in the determination of the required rate of return on Fredriksen's bonds.

3) Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 1.5. It also has $10 million face value of bonds that matures 26 July 2042 and 7 % coupon with annual payments and are priced to yield 14%. Use actual/actual convention method. Settlement date is 8 April 2021. If the company issues up to $ 2,500,000 of new bonds, the bonds will be priced at par and have a yield of 14 %; if it issues bonds beyond $2,500,000, the expected yield on the entire issuance will be 15 %. Company has known that market value of its shares is traded at the value of $10 a share and the new shares can be sold at the same price. The current risk-free rate is 3 % and the expected market return is 10 %. Company’s tax rate is 30 %. What is the WACC if Company raises $7.5 million of new capital (both equity and debt) while maintaining the same debt-to-equity ratio?

Golden Finance Ltd is a small investment company. It is looking for financial assets to add to its investment for 2023. As an investment officer of Golden Finance, you are interested in the following assets: • A preferred share issued by Apple Company, which pays a fixed dividend rate of 13%, face value of $100. . • A non-callable bond issued by Orange Company, which pays 9% coupon rate semi-annually, with face value $1000. The bond will mature in 20 years and has a yield to maturity of 8%. The Company Management also requested you to evaluate two mutually exclusive investment portfolios with the following cash flows to recommend one for the next year's investment: Year 2022-Initial Investment Future cash flow 2023 2024 2025 2026 Portfolio A ($) Portfolio B($) 70,000 80,000 25,000 30,000 40,000 45,000 35,000 40,000 50,000 55,000 Required: 1. Compute the current value of Apple Company's preferred share, given the rate of return for the same type of shares in the same industry is 12% 2.…

On November 1, 2012, Anderson Corp. sold a $500 million bond issue to finance the purchase of a new factory.  These bonds were issued in $1,000 denominations with a maturity date of November 1, 2032. The bonds have a coupon rate of 12.00% with interest paid semiannually.    Required: Determine the value today, November 1, 2022 of one of these bonds to an investor who requires a 8 percent return on these bonds. Why is the value today different from the par value? Assume that the bonds are selling for $950.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean. Explain what layers or textures of risk play a role in the determination of the required rate of return on Anderson’s bonds.

On January 1, 2019, the total assets of the Dexter Company were $270 million. The firm'spresent capital structure, which follows, is considered to be optimal. Assume that there is noshort-term debt.Long-term Debt=$135,000,000 Common Stock=$135,000,000New bonds will have a 10 percent coupon rate and will be sold at par. Common stock, currently,selling at $60 a share, can be sold to net the company $54 a share. Stockholders' required rate ofreturn is estimated to be 12 percent., consisting of a dividend yield of 4 percent and an expectedgrowth rate of 8 percent. (The next expected dividend is $2.40, so $2.40/$60 = 4%.) Retained earnings are estimated to be $13.50 million. The marginal tax rate is 40 percent.Assuming that all asset expansion (gross expenditures for fixed assets plus related workingcapital) is included in the capital budget, the dollar amount of the capital budget, ignoringdepreciation is $135 million. The marginal tax rate is 40 percent. Assuming that all assetexpansion…

David Palmer identified the following bonds for investment: BondA: A$1millionpar,10%annualcouponbond,whichwillmature on July 1, 2025. Bond B: A $1 million par, 14% semi-annual coupon bond (interest will be paid on January 1 and July 1 each year), which will mature on July 1, 2031. Bond C: A $1 million par, 10% quarterly coupon bond (interest will be paid on January 1, April 1, July 1, and October 1 each year), which will mature on July 1, 2026. The three bonds were issued on July 1, 2011. (a) If Bond B is issued at face value and both Bond B and Bond A are having the same yield to maturity (EAR), calculate the market price of Bond A on July 1, 2011. [N​ ote: Full mark would only be given to correct answer of which the values of those variables not provided in the question directly are derived.]  (b） David purchased the Bond C on January 1, 2014 when Bond C was priced to have a yield to maturity (EAR) of 10.3812891%. David subsequently sold Bond C on January 1, 2016…

CCI Inc. has a 9.85% bond that mature on March 15, 2034. Assume that the interest on these bonds is paid quarterly. With a face value of $1,000, what would the bond price be as of March 15, 2024 to an investor who holds the bond until maturity and requires an 10.25% rate of return?

TreeTop Inc. bonds was issued on Oct 15th, 2010. The bonds have a coupon rate of 6.2%, with interest paid annually. The par value of the bonds is $1,000 and the maturity is Oct 15th, 2042. If the market price of one contract of TreeTop bond on Oct 15th, 2020 is $1,105, what is the annual interest rate to be earned by an investor who bought it on Oct 15th, 2020 at the said market price and plan to hold on to the bond till maturity? Round to the 0.01%, i.e., two decimal places. Enter your answer in the form of a percentage. For example, if your answer is "12.34%", enter "12.34".

ABC Corporation will be investing in JKL corporate bonds with face value of $1,600,000, coupon rate of 8%, interests payable quarterly, and remaining term of three years. ABC requires a minimum return from this investment at 8.5%. How much should ABC be willing to pay as maximum price for this investment?