What is the price that investors would pay for the bond

Assignment Help Financial Management

Reference no: EM131959201

In January 1, 2016 ABC crop approved a $300 million Project to build a new plant which will be used to manufacture its next generation cell phones.

To finance the cost of the new plant, the management issued 1000000 shares of seasoned stock at market price of $200 per share. Additionally, $100 million dollars of 3.5% coupon bonds (face value of 1000, with 10-year maturity) was also issued.

In January 1, 2017, the YTM rate for the bond is 5%. The company expects to issue its next annual dividend (DIV1) for the amount of $4. Moreover, the stock has a constant dividend growth rate of 7%. The expected return on the investment is 12%. Answer the following questions. Each question is worth 2 points.

What is the annual interest payment that the bondholders will receive?

What is the percentage of stock in company 2016 capital structure?

What is the price that investors would pay for the bond in 2017?

from your answer in #3, is the bond selling at premium, at par or at a discount?

If you bought he bond in January 1,2016 and sold the bond a year later (in 2017) for the amount in your answer from question #3, what would be your bond rate of return?

In 2017 what is the price of the stock?

Based on the stock price calculated in question#6, what is the dividend yield?

In 2017, what is the current yield for the bond?

Since (DIV1) is given above, which is = $4. What was the previous dividend amount (DIV0)?

Reference no: EM131959201

Questions Cloud

How much will you have in your account on january : How much will be in your account if the three payments begin on January 1, 2014?

Would shareholders want management to make the change : Your company just paid a dividend of $3. Management of your company wants to expand with a new product line. This would cause your company's constant growth.

Calculate the net interest cost for the bond issue : Raleigh received $100,500,000 from the bond issue. What is the net interest cost for the bond issue?

Determine what return are shareholders expecting : A company recently paid a $1.15 dividend. The dividend is expected to grow at a 16.9 percent rate. At a current stock price of $45.87.

What is the price that investors would pay for the bond : In January 1, 2016 ABC crop approved a $300 million Project to build a new plant which will be used to manufacture its next generation cell phones.

How much would janet save : Janet Foster bought a computer and printer at Computerland. The printer had a $800 list price with a $100 trade discount and 2/10, n/30 terms.

Please explain what rate of return : Can you please explain what rate of return you would earn if you paid $950 for a perpetuity that pays $85 per year

Find the firm after-tax component cost of debt : A company's 8% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sells at a price of $638.11.

Create selfservice email marketing system called insightmail : The client is currently in the process of developing a self-service email marketing system called insightMail with their in-house software development team.

User Account

All Pages