Question
13)Preston Corporation has a bond outstanding with an annual interest payment of $90, a market price of $1,280, and a maturity date in 7 years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) a. Coupon rate % b. Current yield % c-1. Approximate yield to maturity % c-2. Exact yield to maturity %
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Question
12)The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows: Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
In $ millionsIn $ millions Current assets$ 60 Current liabilities$ 15 Fixed assets 60 Long-term liabilities 25 Total liabilities$ 40 Stockholders’ equity 80 Total assets$ 120 Total liabilities and
stockholders’ equity$ 120 The footnotes stated that the company had $22 million in annual capital lease obligations for the next 25 years. a.Discount these annual lease obligations back to the present at a 11 percent discount rate. (Do not round intermediate calculations. Round your answer to the nearest million. Input your answer in millions of dollars (e.g., $6,100,000 should be input as “6”).) PV of lease obligations$ million b.Construct a revised balance sheet that includes lease obligations. (Do not round intermediate calculations. Round your answers to the nearest million. Input your answer in millions of dollars (e.g., $6,100,000 should be input as “6”).) Balance Sheet (In $ millions) Current assets$ Current liabilities$ Fixed assets Long-term liabilities Leased property
under capital lease Obligations under
capital lease Total liabilities$ Stockholders’ equity Total assets$ Total liabilities and
Stockholders’ equity$ c.Compute the total debt to total asset ratio for the original and revised balance sheets. (Input your answers as a percent rounded to 2 decimal places.)
Original % Revised % d.Compute the total debt to total equity ratio for the original and revised balance sheets. (Input your answers as a percent rounded to 2 decimal places.) Original % Revised % e.In an efficient capital market environment, should the consequences of SFAS No. 13, as viewed in the answers to parts c and d, change stock prices and credit ratings? YesNo
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Question
11)A $1,000 par value bond was issued 20 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,030. Further assume Ms. Bright paid 20 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to cover the interest costs on the loan. a.What is the current price of the bond? Use Table 16-2. (Input your answer to 2 decimal places.) Price of the bond$ b.What is her dollar profit based on the bond’s current price? (Do not round intermediate calculations and round your answer to 2 decimal places.) Dollar profit$ c.How much of the purchase price of $1,030 did Ms. Bright pay in cash? (Do not round intermediate calculations and round your answer to 2 decimal places.) Purchase price paid in cash$ d.What is Ms. Bright’s percentage return on her cash investment? Divide the answer to part b by the answer to part c. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Percentage return%
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Question
10)The Wrigley Corporation needs to raise $24 million. The investment banking firm of Tinkers, Evers, & Chance will handle the transaction. a.If stock is utilized, 2,100,000 shares will be sold to the public at $12.25 per share. The corporation will receive a net price of $11.50 per share. What is the percentage underwriting spread per share?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Underwriting spread per share % b.If bonds are utilized, slightly over 24,150 bonds will be sold to the public at $1,003 per bond. The corporation will receive a net price of $998 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Underwriting spread per bond % c-1.Which alternative has the larger percentage of spread? StockBond c-2.Is this the normal relationship between the two types of issues? YesNo
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