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Garcia company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 14%, which implies a selleing price of 75%. The effective interest method is used to allocate interest expense.
1. What are the issuers cash proceeds from issuance of these bonds?
2. What total amount of bond interest expense will be recognized over the life of these bonds?
3. What amount of bond interest expense is recorded on the first interest payment date?
List the objectives that banks have for buying securities. Explain the motive for each.
Calculate the present value at time 0 of payments that are received continuously over each year for ten years. The payment is $100 during the first year, $105 during the second year, $110 during the third year, and so on, up to the last payment of $1..
What does the calculation of each ratio represent? How does year one compare with year two, and what trend can be seen when you compare the two years? Is the trend from year one to year two positive or negative? What are the possible reasons for the ..
Business risk is affected by a firm's operations. Which of the following is NOT directly associated with (or does not directly contribute to) business risk? Demand variability. Sales price variability. The extent to which operating costs are fixed. T..
1. on march 22 2013 tenkiller torque technology ttt was taken private in a leveraged buyout financed in part by a 5
Portfolio Return Year-to-date, Company X had earned a -2 percent return. During the same time period, Company Y earned 8 percent and Company Z earned 12 percent. If you have a portfolio made up of 60 percent Company X, 30 percent Company Y, and 10 pe..
Science Co. manufactures industrial products and employs a calendar year for financial reporting purposes. Items (a) through (e) present several of Science Co. transactions during 2007. The total of cash equivalents, marketable securities, and net re..
A grader costs $350,000 to purchase and is expected to have a useful life of 8 years. Annual operating and maintenance costs are estimated to be $35,000 per year, and the salvage value after 8 years of use is estimated to be $50,000. At an interest r..
A 5-year corporate bond has an 8 percent yield. A 10-year corporate bond has a 9 percent yield. The two bonds have the same default risk premium and liquidity premium. The real risk-free rate, r*, is expected to remain constant at 3 percent.
Firms HL and LL are identical except for their leverage ratios and the interest rates they pay on debt. Each has $16 million in invested capital, has $2.4 million of EBIT, and is in the 40% federal-plus-state tax bracket. Calculate the return on inve..
Suppose you bought a bond with a coupon rate of 8.9 percent one year ago for $912. The bond sells for $956 today. Required: (a) Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? What was your total..
Calculate Laurel’s portfolio beta for last year and for this year. Assume that the changes in investment (value) come from changing stock prices rather than buying and selling shares. What has happened to the riskiness of Laurel’s portfolio? Should s..
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