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It is now January 1, 2009, and you are considering the purchase of an outstanding bond that was issued on January 1, 2007. It has a 9.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2036) There is 5 years of call protection (until December 31, 2011), after which time it can be called at 109 - that is a 109% of par, or $1,090. Interest rates have declined since it was issued; and it is now selling at 116.575% of par, or $1,165.75
a. What is the YTM? What is the YTC?
b. If you bought this bond, which return would you actually earn? Explain?
c. Suppose the bond is selling at a discount rather than a premium. Would the YTM have bee the most likely return, or would the YTC have been most likely?
Explain the advantages and disadvantages of debt financing and why an organization would choose to issue stocks rather than bonds to generate funds.
Verbal Communications, Inc., has 14,000 shares of stock outstanding with a par value of $1 per share and a market value of $32 per share. The firm just announced a 100 percent stock dividend. What is the market value per share after the dividend?
Chandeliers Corp. has no debt but can borrow at 7.4 percent. Calculate WACC
Computation of IRR and NPV where The Renn project cost $200,000 and its expected net cash inflows are $47,500 per year for 6 years and then $50,000 for 6 years.
Find some problem areas in the cost of capital analysis and do these problems invalidate the cost of capital procedures we are discussing in this unit?
After the merger, Safeco/Risco would have a corporate WACC of 11%. Therefore, it should reject Project X but accept Project Y.
how might management achieve these goals? What are the downsides to using these financial targets to determine bonus compensation?
Divedends are expected to grow at a rate of 5.2% per year into the indefinite future. If the firm tax rate is 30% what discount rate should you use to evaluate the equipment purchase
A ten-year U.S. Treasury bond has a 3.5 percent interest rate, while an identical maturity corporate bond has a 5.25 percent interest rate.
Total fixed costs per week would increase by $420 (or $29,820) if the mill were to operate on Sunday. a) Using the information provided above, compute the break-even volumes for 6-day and 7-day operation.
The CEO of a bio-technology corporation is concerned about stock market uncertainty surrounding the potential of new drugs in the development pipeline.
Using only the information given, estimate the market value of one share of Charleston's stock.
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