How many bonds does the company have to sell

Assignment Help Financial Accounting
Reference no: EM132631333

Problem a) You are trying to value "A2M" share today (End of June 2019). Assume the current price of the share in the stock market is $17.15 and that you would like to hold the investment for 4 years. Assume that "A2M" will pay its first dividend ($0.5 AUD) one year from now. The total dividend will be paid as a lump sum (at once). After this you also estimate that the dividends will grow respectively at 30%, 25% per year. After that (starting in time 3) you estimate dividends will grow at a constant rate of 5% forever. Assume that today the Australian treasury notes is 1.5%, the market risk premium is 10% and the beta of "A2M" is 0.8. Based on this price would you purchase the share? Why or why not?

Problem b) "A2M" wants to reduce its weighted average cost of capital by replacing some of its equity with long-term debt. Assume that "A2M" would like to raise $200 million with a new issuing of bonds. Assume that the issue will have a coupon rate of 3% with a 5 year maturity. Assume this are semi-annual coupon bonds and each have a face value of $1.000 and the required rates of return for similar bonds in the market is 4%. What would be the issuing price of these bonds? How many bonds does the company have to sell in order to achieve its target?

Reference no: EM132631333

Questions Cloud

Write down tom budget constraint equation : Write down Tom's budget constraint equation, calculate the intercept. Graph Tom's weekly budget line, show intercept, slope and must level graph.
What would be the issuing price of the bonds : You are trying to value "A2M" share today (End of June 2019). Based on this price would you purchase the share? Why or why not?
Principles of applied economics : Analyze and propose solution/s to the economic problems using the principles of applied economics.
Function of advertising in newspapers and magazines : Q1) Sales are a function of advertising in newspapers and magazines
How many bonds does the company have to sell : What would be the issuing price of these bonds? How many bonds does the company have to sell in order to achieve its target?
Find haroon income and slope of his budget line : When he draws his budget line, its X intercept at 100 units. Find Haroon's income and slope of his budget line.
Discuss the accounting treatment for blackjack : Discuss the accounting treatment. Blackjack is a local government organization whose financial statements are prepared using IFRS.
Find the confidence level of interval : A personnel manager has found that historically the scores on aptitude tests given to applicants for entry level positions
Identify the hypothesis or question being tested : What did the authors investigate, and in general how did they do so? Indicate whether or not you think the data support their conclusions/hypothesis.

Reviews

Write a Review

Financial Accounting Questions & Answers

  Contractors for fencing-paving-lighting and landscaping

Conan Corporation purchased land and contracted with a developer to construct an office building. Conan Corporation also engaged other contractors for fencing, paving, lighting, and landscaping.

  How financing costs are treated in incremental cash flow

Give a detailed explanation of how financing costs are treated in incremental cash flow in capital budgeting analysis and the rationale for this treatment

  Merchandise inventory on october

The Adams Corporation, a merchandising firm, has budgeted its activity for November according to the following information-Sales at $450,000, all for cash-Merchandise inventory on October

  Describe influence of exchange rates on cross-border merger

Is now a good time to expand internationally through acquisition? Describe the influence of exchange rates on cross-border merger and acquisition activity.

  Calculate lopez realized and recognized gain or loss

Lopez Company transfer a computer used in its business that has an adjusted basis of $300 and FMV of $1000 to Greene Company and receives in exchange a laser printer with an FMV of $600 that it will use in its business and cash of $400 a. Calculate L..

  Income statement based on the absorption costing concept

Prepare an income statement based on the absorption costing concept. Prepare an income statement based on the variable costing concept. Describe how ?

  Make future reparis was unsupported by consideration

Melnick built a house for Gintzler, but the foundation was defective. Gintzler agreed to accpet the foundation if Melnick guranteed to make future repairs caused by the defects. Melnick agreed but later refused to make any repairs. Melnick argued tha..

  Journal entries for the purchase and the sale of

journal entries for the purchase and the sale of shares.shott farm supplies corporation purchased 800 shares of general

  Prepare appropriate journal entry to record issuance of note

Prepare the appropriate journal entry to record the issuance of the note. 2. Determine the effective interest rate.

  How PS should Classify the preferred shares

Explain with reasons, how PS should: Classify the preferred shares in its financial statements for the year ended 31 December 2012

  Present the worksheet elimination journal entries necessary

Present the worksheet elimination journal entries necessary to prepare consolidated financial statements for 2003. Present the worksheet elimination journal entries necessary to prepare consolidated financial statements for 2004.

  Are stewardship and accountability yesterday heroes

Are stewardship and accountability yesterday's heroes? Compare and contrast the objectives of general purpose financial reporting set out in the ‘Amendments'(OB2-OB11) with ‘The Objectives of Financial Statements' (paras 12-14) in the ‘superseded F..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd