WEEK 6
Par value of bond: P100.00. 50,000 issued. Interest rate is 9% for 20 years.
Unamortized flotation cost is 1,000,000.00. Tax rate is 30%. The current price is
P101.00. The company is considering to issue a new bond. Par value of bond:
P100.00. 50,000 issued. Interest rate is 8% for 20 years. Unamortized flotation
cost is 2,000,000.00. Additional issue cost of P3,000,000. The overlap period
during which both issues will be outstanding is expected to be one month. How
much is the net cash outflow from issuing new bonds? P2,770,000.00
Par value of bond: P100.00. 50,000 issued. Interest rate is 9% for 20 years.
Unamortized flotation cost is 2,500,000.00. Tax rate is 34%. The current price is
P102.00. The company is considering to issue a new bond. Par value of bond:
P100.00. 50,000 issued. Interest rate is 8% for 20 years. Unamortized flotation
cost is 2,000,000.00. The overlap period during which both issues will be
outstanding is expected to be one month.. Additional issue cost of P400,000.
What is the PV of initial outlay? P 2,117,500.00
Par value of bond: P1,000.00. Interest rate is 12% for 10 years. The current price
is P950.00. What is the bond yield to maturity? 12.89%
Par value of bond: P100.00. 50,000 issued. Interest rate is 9% for 20 years.
Unamortized flotation cost is 1,000,000.00. Tax rate is 30%. The current price is
P101.00. The company is considering to issue a new bond. Par value of
bond:P100.00. 50,000 issued. Interest rate is 8% for 20 years. Unamortized
flotation cost is 2,000,000.00. Additional issue cost of P3,000,000. The overlap
period during which both issues will be outstanding is expected to be one month.
How much is the net cash savings from the elimination of old bonds?
P3,135,000.00
A firm borrows Php 1,000,000.00 which is to be repaid in 5 years. The loan will
carry an 8% interest rate. How much is the remaining principal on year 4?
P231,986.00
Par value of bond: P100.00. 50,000 issued. Interest rate is 9% for 20 years.
Unamortized flotation cost is 2,500,000.00. Tax rate is 34%. The current price is
P102.00. The company is considering to issue a new bond. Par value bond:
P100.00. 50,000 issued. Interest rate is 8% for 20 years. Unamortized flotation
cost is 2,000,000.00. The overlap period during which both issues will be
outstanding is expected to be one month.. Additional issue cost of P400,000.
How much is the net cash outflow from issuing new bonds? P2,606,000.00
Par value of bond: P100.00. 50,000 issued. Interest rate is 9% for 20 years.
Unamortized flotation cost is 1,000,000.00. Tax rate is 30%. The current price is
P101.00. The company is considering to issue a new bond. Par value of
bond:P100.00. 50,000 issued. Interest rate is 8% for 20 years. Unamortized
flotation cost is 2,000,000.00. Additional issue cost of P3,000,000. The overlap
period during which both issues will be outstanding is expected to be one month.
Should the refunding decision be accepted? No, net present value is negative.
Par value of bond: P100.00. 50,000 issued. Interest rate is 9% for 20 years.
Unamortized flotation cost is 2,500,000.00. Tax rate is 34%. The current price is
P102.00. The company is considering to issue a new bond. Par value of
bond:P100.00. 50,000 issued. Interest rate is 8% for 20 years. Unamortized
flotation cost is 2,000,000.00. The overlap period during which both issues will be
outstanding is expected to be one month.. Additional issue cost of P400,000.
How much is the net cash savings from elimination of old bonds? P2,927,500.00
Par value of bond: P100.00. 50,000 issued. Interest rate is 9% for 20 years.
Unamortized flotation cost is 1,000,000.00. Tax rate is 30%. The current price is
P101.00. The company is considering to issue a new bond. Par value of
bond:P100.00. 50,000 issued. Interest rate is 8% for 20 years. Unamortized
flotation cost is 2,000,000.00. Additional issue cost of P3,000,000. The overlap
period during which both issues will be outstanding is expected to be one month.
What is the PV of initial outlay? P4,862,500.00
A firms borrows Php 1,000,000.00 which is to be repaid in 5 years. The loan will
carry an 8% interest rate. How much is the annual amortization? P250,438.00
WEEK 7
An 8,000 coupon bond with a 400 coupon payment every year has a coupon rate
of 5 percent
The interest rate that equates the present value of payments received from a
debt instrument with its value today is the yield to maturity.
The current yield on a 5,000, 8 percent coupon bond selling for 4,000 is 10%
If a 5,000 coupon bond has a coupon rate of 13 percent, then the coupon
payment every year is 650
Which of the following 1,000 face-value securities has the highest yield to
maturity? A 5% coupon bond with a price of 600
The yield on a discount basis of a 90-day, 1,000 Treasury bill selling for 950 is
20%
If a 10,000 face-value discount bond maturing in one year is selling for 5,000,
then its yield to maturity is 100%
Which of the following statements about financial markets and securities are
true? A debt instrument is long term if its maturity is ten years or longer.
With an interest rate of 5 percent, the present value of 100 next year is
approximately 95
With an interest rate of 10 percent, the present value of a security that pays
1,100 next year and 1,460 four years from now is: 2000
WEEK 9
Advantages of preferred shares are enumerated except for: Seniority of the
holder’s claim
Determine the intrinsic value of preferred share if the company issue a yearly
dividend of 12 and required return of 10%. P120
Which of the following actions are likely to reduce agency conflicts between
stockholders and managers? Increasing the threat of corporate takeover
Preferred share is a form of long-term equity that represents ownership interest
of the firm. Preferred share is a class of equity shares which has a preference
over ordinary equity shares in the payment of dividends. First statement is False.
Second statement is True.
John Winston Corporation is growing at a constant rate of 6% per year. It has
both common stock and non-participating preferred stock outstanding. The cost
of preferred stock (kp) is 8%. The par value of the preferred stock is 120, and the
stock has a stated dividend of 10% of par. What is the market value of the
preferred stock? 150
What impact will the issuing of new preferred stock have on the following for the
issuing entity? Long-Term Debt – Debt-to-Equity Ratio No Change – Decrease
Which one of the following sources of new capital usually has the lowest after-tax
cost? Bonds
If markets are in equilibrium, which of the following will occur: Each investment’s
expected return should equal its required return.
The primary goal of a publicly-owned firm interested in serving its stockholders
should be to Maximize the stock price per share.
A company recently issued 9 preferred stock. The preferred stock sold for 40 a
share, with a par of 20. The cost of issuing the stock was 5 a share. What is the
company’s cost of preferred stock. 5.1
WEEK 10
AJ Company expects dividends to grow at a rate of 12% a year for the next five
years and 6% a year thereafter. The firm’s current dividend is P3.00 per share.
An investor, who requires a 14% rate of return, determine the value of AJ’s
ordinary equity shares. 38.48
Adams Company stock paid a dividend of 3.00 last year, and 3.25 this year. The
increase in the dividend is similar to the constant growth of the company.
Considering the risk, your required rate of return from this stock is 14%. Find the
price of stock? 62.13
Calculate the fair market price of a stock that just gave a dividend of 1.50, and
the long-term annual growth rate of the company is 3%. Investors require a
return of 16% from such a stock.11.88
Cape Town Company stock paid a dividend of 4.00 in 2009 and 3.75 in 2008.
These dividends reflect the long-term growth rate of the company. If your
required rate of return is 16% for Cape Town stock, how much should you pay for
a share in 2009? 45.71
The current price of Ford stock is 50 a share and it has paid a dividend of 4 this
year. The required rate of return for Ford shareholders is 16%. What is the
expected growth rate of Ford? 7.407%
You bought a stock at $45 last year. After one year, you received a dividend of
2.50, and then sold the stock for 49.00. Calculate the rate of return on your
investment. 14.44%
A stock sells at 54 a share. Its current dividend is 2.00 a share, and the
stockholders require a return of 16% on their investment. Find the expected
growth rate of the dividends of this stock. 11.86%
Rudolph Co stock has just paid its annual dividend of 2.25. The expected growth
rate of Rudolph is 7% in the long run. If your required rate of return is 16%, how
much should you pay for a share of Rudolph stock? 26.75
Reno Corporation stock has just paid its annual dividend of $2.00. This dividend
will become $2.10 next year, in line with the long-term growth record of the
company. Considering the risk of the company, the stockholders have a 15%
required rate of return. Find the price of one share of Reno stock using the
Gordon Constant Growth Model. 21.00
Bradford Corp preferred stock pays a quarterly dividend of $1.25 and the
stockholders have a required rate of return of 12% annually on their investments.
Assuming quarterly compounding, find the price of a Bradford preferred share
using zero growth model. 41.67
