Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue
Question:
Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10-year maturity. The investors require a 9 percent rate of return.
a. Compute the market value of the bonds.
b. What will the net price be if flotation costs are 10.5 percent of the market price?
c. How many bonds will the firm have to issue to receive the needed funds?
d. What is the firm’s after-tax cost of debt if its marginal tax rate is 21 percent?
Step by Step Answer:
a b c d Cost of D...View the full answer
Foundations Of Finance
ISBN: 9780135160619
10th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
Students also viewed these Business questions
-
A $ 1,000 par value bond with seven years left to maturity has a 9 percent coupon rate (paid semiannually) and is selling for $ 945.80. What is its yield to maturity?
-
A $ 1,000 par value bond with five years left to maturity pays an interest payment semiannually with a 6 percent coupon rate and is priced to have a 5 percent yield to maturity. If interest rates...
-
A $1,000 par value bond with an 8% coupon rate (semiannual interest) matures in 5 years and currently sells for $1,200. What is the bonds yield to maturity?
-
The mass-to-charge ratio for the positive ion F+ is 1.97 107 kg/C. Using the value of 1.602 1019 C for the charge on the ion, calculate the mass of the fluorine atom. (The mass of the electron is...
-
The following figures show the results of simulations of the Poisson process with the given value of the rate λ. Find the number of hits per second in each of the simulated seconds. What...
-
When CMS reduces the fees charged by specialists caring for Medicare patients in an attempt to reduce total costs, what is the observed response by those specialists?
-
Football, Brain Size, and Cognitive Scores Exercise 2.143 on page 102 introduces a study that examines the association between playing football, brain size as measured by left hippocampal volume (in...
-
Thompson Travel borrowed $68,000 on October 1, 2012, by signing a one-year note payable to Metro One Bank. Thompsons interest expense for the remainder of the fiscal year (October through December)...
-
1. Fill in the following information below: Assets Liabilities Stockholder's Equity Business #1 ? $181,000 $212,000 Business #2 $74,800 ? $36,200 Business # 3 $30,000 $21,400 ? 2. Each of the...
-
1. You're trying to value your options. What minimum value would you assign? What is the maximum value you would assign? 2. Suppose that, in three years, the company's stock is trading at $60. At...
-
Compute the costs for the following sources of financing: a. A $1,000 par value bond with a market price of $970 and a coupon interest rate of 10 percent. Flotation costs for a new issue would be...
-
Crawford Enterprises is a publicly held company located in Arnold, Kansas. The firm began as a small tool and die shop but grew over its 35-year life to become a leading supplier of metal fabrication...
-
A. Rookie, an assistant professor of human relations at the Jackson School of Public Affairs, wants to teach his class the value of cooperation. He divides the class into three teams. Each team must...
-
Suppose that the woman seeking a \($5\),000 down payment in Problem 3.3 has the option of betting either \($1\),000 or \($2\),000. She chooses the following aggressive strategy. If she has \($1\),000...
-
The relationship between cutting tool life (T ) in minutes and cutting speed (V) in feet/minute is expressed by Taylors equation: VT n = K, where K is a constant. From this equation, it is possible...
-
Prove that the angular momentum operator \(L_{z}\) generates rotations around the \(z\)-axis.
-
Following the MLE method, the information matrix is closely related with the asymptotic variance of MLE. For the MLE of Poisson distribution, (a) First compute the Fisher information matrix then plug...
-
Suppose you have been out of school and gainfully employed for 5 years. You have three alternatives available for investment with your own money. Each has some element of risk, although some are...
-
If a company has advance ticket sales totaling $2,000,000 for the upcoming football season, the receipt of cash would be journalized as: 1) Debit Unearned Revenue, credit Cash. 2) Debit Unearned...
-
Which of the companies has the lowest accounts receivable turnover in the year 20X2? a. Company A. b. Company B. c. Company C. d. CompanyD. 20X1 20X2 Credit Sales Average Receivables Balance $1.0...
-
To what amount will the following investments accumulate? a. $5,000 invested for 10 years at 10 percent compounded annually b. $8,000 invested for 7 years at 8 percent compounded annually c. $775...
-
If you invest $900 in a bank where it will earn 8 percent compounded annually, how much will it be worth at the end of seven years? Use a spreadsheet to calculate your answer.
-
Jack asked Jill to marry him, and she has accepted under one condition: Jack must buy her a new $330,000 Rolls-Royce Phantom. Jack currently has $45,530 that he may invest. He has found a mutual fund...
-
Excerpts from Andre Company's December 31, 2024 and 2023, financial statements are presented below: Accounts receivable Inventory Net sales Cost of goods sold Total assets Net income Total...
-
The York City Hospital has just acquired new equipment. The equipment cost $ 4 , 2 5 0 , 0 0 0 , and the organization spent $ 1 3 5 , 0 0 0 on upgrading the physical plant to the new equipment will...
-
Calculate the following showing all the necessary steps: Note: CPP rate to be used in the calculation is 5.95%. Note: Don't forget to deduct pay period exemption\ \ Tanya earns $25.00 per hour. This...
Study smarter with the SolutionInn App