Therese Andrews has just been hired as a corporate financial analyst and has received her first...
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Therese Andrews has just been hired as a corporate financial analyst and has received her first assignment. Therese is to take the $5 million in cash received from a recent divestiture and use part of these proceeds to retire outstanding debt. The current interest rate is 6 percent. a. (3 marks) The company has asked Therese to retire a perpetual bond that pays $150,000 each year forever. How much of the avallable cash will be used to retire this bond (Le., what is the present value of the bond?) PV Bond = b. (3 marks) The company will also be making a payment of $1 millon in 5 years to pay off an additional debt. How much cash needs to be set aside today to make this payment? Cash= C (4 marks) Any remaining cash will be paid out to shareholders as a 10-year annuity. What annual payments will the company be able to make at the end of each of the next 10 years? Payment = d. (1 mark) If the payments in (c) were at the start of the year rather than at the end, the payments would be: HIGHER LOWER THE SAME (circle one) Therese Andrews has just been hired as a corporate financial analyst and has received her first assignment. Therese is to take the $5 million in cash received from a recent divestiture and use part of these proceeds to retire outstanding debt. The current interest rate is 6 percent. a. (3 marks) The company has asked Therese to retire a perpetual bond that pays $150,000 each year forever. How much of the avallable cash will be used to retire this bond (Le., what is the present value of the bond?) PV Bond = b. (3 marks) The company will also be making a payment of $1 millon in 5 years to pay off an additional debt. How much cash needs to be set aside today to make this payment? Cash= C (4 marks) Any remaining cash will be paid out to shareholders as a 10-year annuity. What annual payments will the company be able to make at the end of each of the next 10 years? Payment = d. (1 mark) If the payments in (c) were at the start of the year rather than at the end, the payments would be: HIGHER LOWER THE SAME (circle one)
Expert Answer:
Answer rating: 100% (QA)
PV of a perpetual bond Couponrate 150000006 2500000 PV of the cash payment 10000001065 74725817 R... View the full answer
Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
Posted Date:
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