Question

Question 3.Olympic Sports has issues of debt outstanding. One is 7% coupon bond with a face value of

30million, a maturity of 15years, and a yield to maturity of 8$. the coupons are paid maturity. The other bond issue has a maturity of 20 years with coupons also pad annually, and a coupon rate of 8%. The face value is $35million, and the issue sells for 94% of per value. The firm’s tax rate is 30%.

a. what is the before tax cost of debt for Olympic?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal.

b. What is Olympic’s after-tax cost of debt

Question 6.

Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 27% of the company’s present value, and you believe that at this capital structure the company’s debt holders will demand a return of 5% and stockholders will require 12%. The company is forecasting that next year’s operating cash flow (depreciation plus profit after tax at 40%) will be $65 million and that investment in plant and net working capital will be $27million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year.

a. What is the total value of Icarus? (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole dollar amount.)

b. What is the value of the company’s equity? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.)

Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"