PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 23, Problem 8PS
Default option Digital Organics has 10 million outstanding shares trading at $25 per share. It also has a large amount of debt outstanding, all coming due in one year. The debt pays interest at 8%. It has a face value of $350 million but is trading at a market value of only $280 million. The one-year risk-free interest rate is 6%.
- a. Write out the put–call parity formula for Digital Organics’s stock, debt, and assets.
- b. What is the value of the company’s option to default on its debt?
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Calculating interest rates - Excel
PAGE LAYOUT
FORMULAS
DATA
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Solve for the unknown interest rate in each of the following:
Complete the following analysis. Do not hard code
values in your calculations. All answers should be
positive.
7
8
Present value
Years
Interest rate
9
10
11
SA SASA A
$
181
4
$
335
18
$
48,000
19
$
40,353
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Future value
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Canning Machine
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Monster Beverage is considering purchasing a new canning machine.
This machine costs $3,500,000 up front.
Required return = 12.0%
Year
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$-3,500,000
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$1,000,000
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$1,200,000
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$1,300,000
4
$900,000
What is the value of Year 3 cash flow discounted
to the present?
5
$1,000,000
Enter a response then click Submit below
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Submit
Chapter 23 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 23 - Expected yield You own a 5% bond maturing in two...Ch. 23 - Bond ratings In February 2018, Aaa bonds yielded...Ch. 23 - Bond ratings It is 2030 and the yields on...Ch. 23 - Prob. 4PSCh. 23 - Default option Other things equal, would you...Ch. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Default option Digital Organics has 10 million...Ch. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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