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Chapter 10 6. The Hartford Telephone Company ha...

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Chapter 10 6. The Hartford Telephone Company has a $1,000 par value bond outstanding that pays 11 percent annual interest. The current yield to maturity on such bonds in the market is 14 percent. Compute the price of the bonds for these maturity dates: a. 30 years. b. 15 years. c. 1 year. 13. Tom Cruise Lines, Inc., issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 12 percent. This return was in line with the required returns by bondholders at that point as described below: Real rate of return ........................ 3% Inflation premium ......................... 5 Risk premium .............................. 4 Total return ............................... 12% Assume that five years later the inflation premium is only 3 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 20 years remaining until maturity. Compute the new price of the bond. 24. Bedford Mattress Company issued preferred stock many years ago. It carries a fixed dividend of $8 per share. With the passage of time, yields have gone down from the original 8 percent to 6 percent (yield is the same as required rate of return). a. What was the original issue price? b. What is the current value of this preferred stock? Chapter 11 7. The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 8 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 20 percent higher; that is, firms that paid 10 percent for debt last year will be paying 12 percent this year. a. If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on its cost last year and the 20 percent increase? b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 35 percent because of involvement in political activities), what would the aftertax cost of the debt be? 15. The treasurer of Riley Coal Co. is asked to compute the cost of fixed income securities for her corporation. Even before making the calculations, she assumes the aftertax cost of debt is at least 2 percent less than that for preferred stock. Based on the facts below, is she correct? Debt can be issued at a yield of 10.6 percent, and the corporate tax rate is 35 percent. Preferred stock will be priced at $50 and pay a dividend of $4.40. The flotation cost on the preferred stock is $2. 19. United Business Forms? capital structure is as follows: Debt ............................................ 35% Preferred stock ........................... 15 Common equity .......................... 50 The aftertax cost of debt is 7 percent, the cost of preferred stock is 10 percent, and the cost of common equity (in the form of retained earnings) is 13 percent. Calculate United Business Forms? weighted average cost of capital in a manner similar to Table 11?1 on page 332.,Table 11?1 Cost of capital?Baker Corporation (1) (2) (3) Cost (aftertax) Weights Weighted Cost Debt ............................................................... Kd 7.05% 30% 2.12% Preferred stock .............................................. Kp 10.94 10 1.09 Common equity (retained earnings) .............. Ke 12.00 60 7.20 Weighted average cost of capital .................. Ka 10.41%,Hopefully this works better :) Here is Ch 11. page 332 is the 2nd page, I think.,Hello, thanks for answering the first question. But, I paid 30$ for all six questions to be answered... are you going to answer them? The excel document only contained the first one...

 

Paper#4118 | Written in 18-Jul-2015

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