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##### Tracer Manufacturers issued a 10-year bond six years ago

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**Question**

4. Tracer Manufacturers issued a 10-year bond six years ago. The bond?s maturity value is $1,000, and its;coupon interest rate is 6 percent. Interest is paid semiannually. The bond matures in four years. If;investors require a return equal to 5 percent to invest in similar bonds, what is the current market value of;Tracer?s bond?;5.The free cash flows (in millions) shown below are forecast by Simmons Inc. If the weighted average;cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year;3 as from Year 2 to Year 3;Year: 0 1 2 3;Free cash flow: -$20 $42 $45;1) What is the value of operations? (Hints: the growth rate of FCF after year 3 is 45/42-1, since the;growth rate after year 3 is the same as the rate from year 2 to year 3);2) the balance sheet show $ 20 million of short-term investment that are unrelated to investment, $30;million of long-term debt, $40 million of preferred stock, and $100 million of common equity. This firm;has 10 million shares of stock outstanding. What is the best estimate of the stock?s price per share?

Paper#30439 | Written in 18-Jul-2015

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