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ABC Corp. has been forced to file for bankruptcy. The company has been allowed to reorganize and the courts have specified for a new bond with more favorable terms to be issued. The new issue will consist of 20-year, 12% coupon rate bond with semiannual coupons and each bond in the issue having a $1,000 par value. However, the new bond indenture relieves the company of making interest payments for the first 6 years. For the remaining 14 years, the regular interest payments would resume. The reorganization calls for the $720 in deferred interest to be paid in 2 equal installments; one payment of $360 at the end of year 12 and one payment of $360 at maturity.
Calculate the value of a new $1,000 par value bond assuming a yield to maturity of 10%. Show your work.
You purchased a zero coupon bond one year ago for $173.85. The market interest rate is now 9 percent. If the bond had 20 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding. ..
LETU Inc. is considering modifying its credit terms from net 30 to net 45. They believed that although DIH (50 days) and DPO (60 days) will not change, it will result in a 7% increase in sales. LETU’s annual sales is $600 million and COGS equal 60% o..
What are some strategies and tools that help companies manage their short-term liabilities? Why does it benefit companies to take advantage of these strategies?
A firm has a market value of equity of $30,000. It borrows $7500 at a cost of 8%. If the firm’s assets have a cost of capital of 15%, what is the firm's cost of equity capital? Assume no taxes.
There is an expression that it is best to operate a business using “other people’s money.” Given that other people’s money is reflected in accounts payable, explain how accounts payable affects the external funds required (EFR).
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. What is the after-tax cash flow fro..
List and Describe at least five stakeholders in the health care payer system - Cash flow and a source of value
Which type of bond should you consider purchasing if your goal is to lower unsystematic risk?
Suppose that you enter into a long position on a 6-month pound forward today and lock-in the price of $1.50 (the forward rate). If at the maturity (6 month from now) the spot rate turns out to be $1.62, what is your gain or loss? The contract size is..
Mary has an investment worth 55,500 dollars. The investment will make regular, fixed quarterly payments of 1,100 dollars to Bob forever with the first regular payment expected in 3 months from today. What is the expected quarterly return for the inve..
Calculate how much you would have in 10 years if you saved $3,500 a year at an annual rate of 6 percent with the company contributing $875 a year. Use Exhibit 1-B.
Using the spreadsheet provided, develop a 4-year financial model to recommend the best decision using a net present value discount rate of 8%.
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