Question 2 a. Assume Time Warner shares have a market capitalization of $40 billion. The company...
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Question 2 a. Assume Time Warner shares have a market capitalization of $40 billion. The company is expected to pay a dividend of $0.25 per share and each share trades for $40. The growth rate in dividends is expected to be 7% per year. Also, Time Warner has $20 billion of debt that trades with a yield to maturity of 9%. If the firm's tax rate is 40%, what is the WACC? (6 marks) b. A risk-free, zero-coupon bond with a face value of $10,000 has 15 years to maturity. If the YTM is 6.1%, At what price will the bond trade? (3 marks) c. Under what situation can a zero-coupon bond be selling at a premium? (3 marks) d. What must be the price of a $10,000 bond with: 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10%? (3 marks) Question 2 a. Assume Time Warner shares have a market capitalization of $40 billion. The company is expected to pay a dividend of $0.25 per share and each share trades for $40. The growth rate in dividends is expected to be 7% per year. Also, Time Warner has $20 billion of debt that trades with a yield to maturity of 9%. If the firm's tax rate is 40%, what is the WACC? (6 marks) b. A risk-free, zero-coupon bond with a face value of $10,000 has 15 years to maturity. If the YTM is 6.1%, At what price will the bond trade? (3 marks) c. Under what situation can a zero-coupon bond be selling at a premium? (3 marks) d. What must be the price of a $10,000 bond with: 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10%? (3 marks)
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