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Suppose your company needs to raise $10 million to construct a new office building at an expanded manufacturing site. As CFO, you plan to raise the money by selling 30-year $1,000 par value bonds with a coupon rate of 6% which is the Yield in Maturity on your firm’s outstanding bonds. Between the time that your bond agreement is finalized and the bonds are sold to investors, inflation spikes and adds 2% to the required return on your bonds. a. Prior to the rate increase, how many bonds would your company need to issue to fund the capital investment under consideration? b. After the rate increase, how many bonds would your firm need to issue to fund the capital investment under consideration? c. Suppose your firm could issue 10-year bonds instead of the 30-year bonds. How many of the 10-year bonds would your firm need to sell?
Which of the following statements about the relationship between yield to maturity and bond prices is false?
Zhen Yi Computers has an outstanding issue of bond with a par value of $1,000, with an annual 12% coupon rate. (However, note that interest payments on this bond are paid semi-annually) The bond was issued 25 years ago and has 5 years to maturity. Wh..
Breakeven cash inflows The One Ring Company, a leading producer of fine cast silver jewellery, is considering the purchase of new casting equipment that will allow it to expand its product line. How would the minimum yearly cash inflow change if the ..
An investment pays $2,600 per year for the first 4 years, $5,200 per year for the next 6 years, and $7,800 per year the following 7 years (all payments are at the end of each year). If the discount rate is 10.25% compounding quarterly, what is the fa..
Barenbaum Industries projects that cash outlays of $4.5 million will occur uniformly throughout the year. Barenbaum plans to meet its cash requirements by periodically selling marketable securities from its portfolio. Use the Baumol model to determin..
The covariance between rate of return on risk-free asset and rate of return on any risky asset is zero. Multi-factor models enable us to form causal relationships between security returns and movement of one or more common factors.
YIELD TO MATURITY A firm's bonds have a maturity of 9 years with a $1,000 face value, have an 7% semiannual coupon, are callable in 5 years at $1,200, and currently sell at a price of $1,150. What are their nominal yield to maturity?
Tri-coat Paints has a current market value of $34 per share with earnings of $1.66. What is the present value of its growth opportunities (PVGO) if the required return is 5%?
introductionbecause of the increased scrutiny on the actions of corporations and those who act on behalf of
Ezzell Corporation issued perpetual preferred stock with a 8% annual dividend. The stock currently yields 8%, and its par value is $100. What is the stock's value? Round your answer to two decimal places. Suppose interest rates rise and pull the pref..
The Bumble Bee. Corp. has a beta of 1.45. You observed the risk free rate of return to be 6.5% and the market risk premium of 5%. What is the expected return of the stock?
What are the 4 main criteria that a firm should consider when determining the firm’s appropriate debt-to-equity ratio? Is the ratio likely to change over time? How?
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