Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
14th Edition
ISBN: 9780133740912
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 9, Problem 9.1WUE
Summary Introduction

To discuss:

The net proceeds from the sale of a bond.

Introduction:

The net proceeds from the sale of a bond are defined as the funds that a firm receives from the sale of a bond. Bonds are either sold at discount, at par or at premium. The net proceeds from the sale of a bond is the difference between the total proceeds and the underwriting charges and brokerage fees. Floatation cost refers to the total cost of issuing and selling of securities.  Floatation cost includes two components the underwriting charges and brokerage fees.  The floatation costs reduce the total proceeds received by the firm as they are paid from the bond funds. The floatation cost is the difference between the total proceeds and net proceeds.

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The prodave paint company earned a net profit margin of 20% on revenues of $20m this year. Fixed Capital Investment was $2 m and depreciation was $3 m. Working capital Investment equals 7.5% of the Sales level in that year. Net income, fixed Capital Investment, depreciation, interest expenses and sales are expected to grow at 10% per year for the next 5 years. After 5 years, the growth in sales , net income, depreciation and interest expenses will decline to a stable 5% per year and fixed Capital Investment and depreciation will offset each other. The tax rate is 40% and the prodave has 1 m shares of common stock outstanding and long term debt paying 12.5% interest trading at it's par value of $32 m. The WACC is 17% during the high growth stage and 15% during the stable growth stage.  Required: a) Calculate FCFE b) Determine FCFF c) Estimate the value of Equity  d) Calculate the value of the Firm

Chapter 9 Solutions

Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)

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