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##### bus 320 connect homework 5 (new version sep 2013)

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Question;Rest attched in the file total 34 question1 Problem 10-2 Bond value [LO3];Applied Software has $1,000 par;value bonds outstanding at 20 percent interest. The bonds will mature in 15;years. UseAppendix;BandAppendix;D.;Compute the current price of the;bonds if the present yield to maturity is(Round "PV Factor" to 3 decimal places, intermediate and;final answers to2;decimal places. Omit the "$" sign in your response);Price;of the;bond;(a) 10 percent;$;(b) 15 percent;$;(c) 12 percent;$;2.;value:1.00;points;Problem 10-4 Bond value [LO3];Barry?s Steroids Company has;$1,000 par value bonds outstanding at 14 percent interest. The bonds will;mature in 40 years.;If the percent yield to maturity;is 11 percent, what percent of the total bond value does the repayment of;principal represent? UseAppendix;BandAppendix;D.(Round intermediate calculations to 2 decimal;places, "PV Factor" and final answer to 3 decimal places. Omit the;%" sign in your response.);Principal repayment;%;3.;value:1.00;points;Problem 10-5 Bond value [LO3];Essex Biochemical Co. has a $1,000;par value bond outstanding that pays 19 percent annual interest. The current;yield to maturity on such bonds in the market is 11 percent. UseAppendix;BandAppendix;D.;Compute the price of the bonds for;these maturity dates(Round "PV;Factor" to 3 decimal places, intermediate and final answers to 2 decimal;places. Omit the "$" sign in your response);Price;of the;bond;(a) 25 years;$;(b) 15 years;$;(c) 4 years;$;rev: 04_27_2012;check;my workeBook;Linkr;5.;value:1.00;points;Problem 10-11 Effect of maturity on bond price [LO3];Refer toTable;10-2;(a);Assume the interest rate in the;market (yield to maturity) goes down to 8 percent for the 10 percent bonds.;Using column 2, indicate what the bond price will be with a 10-year, a;20-year, and a 30-year time period.(Round;PV Factor" to 3 decimal places, intermediate calculations and;final answers to 2 decimal places. Omit the "$" sign in your;response.);Maturity;Bond;price;10 Years;$;20 years;30 years;(b);Assume the interest rate in the;market (yield to maturity) goes up to 12 percent for the 10 percent;bonds. Using column 3, indicate what the bond price will be with a 10-year, a;20-year, and a 30-year period.(Round;PV Factor" to 3 decimal places, intermediate calculations and;final answers to 2 decimal places. Omit the "$" sign in your;response.);Maturity;Bond;price;10 Years;$;20 years;30 years;(c);Assume the interest rate in the;market (yield to maturity) goes down to 8 percent for the 10 percent bonds.;If interest rates in the market are going down, which bond would you choose;to own?;Longest-term bond;Shortest-term bond;(d);Assume the interest rate in the;market (yield to maturity) goes up to 12 percent for the 10 percent bonds. If;interest rates in the market are going up, which bond would you choose to;own?;Longest-term bond;Shortest-term bond;6.;value:1.00;points;Problem 10-13 Effect of yield to maturity on bond price [LO3];Tom Cruise Lines, Inc., issued;bonds five years ago at $1,000 per bond. These bonds had a 20-year life when;issued and the annual interest payment was then 14 percent. This return was;in line with the required returns by bondholders at that point as described;below;Real rate of return;4;%;Inflation premium;5;Risk premium;5;Total;return;14;%;Assume that five years later the;inflation premium is only 2 percent and is appropriately reflected in the;required return (or yield to maturity) of the bonds. The bonds have 15 years;remaining until maturity.;Compute the new price of the bond.;UseAppendix;BandAppendix;D.(Round;PV Factor" to 3 decimal places, intermediate and final answer;to 2 decimal places. Omit the "$" sign in your response.);New price;$;rev: 07-13-2011;7.;value:2.00;points;Problem 10-14 Analyzing bond price changes [LO3];(a);Find the present value of 3;percent ? $1,000 (or $30) for 15 years at 11 percent. The $30 is assumed to;be an annual payment. UseAppendix;D. (Round "PV Factor" to;3 decimal places, intermediate and final answerto 2 decimal places. Omit the "$" sign;in your response.);Present value;$;(b);Add the answer obtained in partato 1,000.(Round "PV Factor" to 3 decimal;places, intermediate and final answerto 2 decimal places. Omit the "$" sign in your;response.);Present value;$;8.;value:2.00;points;Problem 10-17 Deep discount bonds [LO3];Lance Whittingham IV specializes;in buying deep discount bonds. These represent bonds that are trading at well;below par value. He has his eye on a bond issued by the Leisure Time;Corporation. The $1,000 par value bond pays 8 percent annual interest and has;17 years remaining to maturity. The current yield to maturity on similar;bonds is 10 percent.;(a);What is the current price of the;bonds? UseAppendix;BandAppendix;D. (Round "PV Factor" to;3 decimal places, intermediate and final answers to 2 decimal places. Omit;the "$" sign in your response.);Current price;$;(b);By what percent will the price of;the bonds increase between now and maturity?(Round;PV Factor" to 3 decimal places, intermediate and final answers to;2 decimal places. Omit the "%" sign in your response.);Price increases by;%;rev: 07-13-2011;check;my workeBook;Linkreferences;9.;value:1.00;points;Problem 10-19 Approximate yield to maturity [LO3];Bonds issued by the Tyler Food;Corporation have a par value of $1,000, are selling for $1,410, and have 20;years remaining to maturity. The annual interest payment is 20.5 percent ($205).;Compute the approximate yield to;maturity.(Do not round intermediate calculations. Round;your answer to 2 decimal places. Omit the "%" sign in your;response.);Approximate yield to;maturity;10.;value:2.00;points;Problem 10-22 Bond value-semiannual analysis [LO3];You are called in as a financial;analyst to appraise the bonds of Olsen?s Clothing Stores. The $1,000 par;value bonds have a quoted annual interest rate of 11 percent, which is paid;semiannually. The yield to maturity on the bonds is 14 percent annual;interest. There are 20 years to maturity. UseAppendix;BandAppendix;D.;(a);Compute the price of the bonds;based on semiannual interest payments.(Round;PV Factor" to 3 decimal places, intermediate and final answer to 2;decimal places. Omit the "$" sign in your response.);Price of the bonds;$;(b);With 15 years to maturity, if;yield to maturity goes down substantially to 8 percent, what will be the new;price of the bonds?(Round "PV Factor" to 3 decimal;places, intermediate and final answer to 2 decimal places. Omit the;$" sign in your response.);New price;$;11.;value:1.00;points;Problem 10-24 Preferred stock value [LO4];Bedford Mattress Company issued;preferred stock many years ago. It carries a fixed dividend of $11 per share.;With the passage of time, yields have gone down from the original 10 percent;to 9 percent (yield is the same as required rate of return).;(a);What was the original issue price?(Round your answer to 2 decimal places.Omit the "$" sign in your response.);Original price;$;(b);What is the current value of this;preferred stock?(Round your answer to 2 decimal;places.Omit the "$;sign in your response.);Current value;$;12.;value:1.00;points;Problem 10-26 Preferred stock rate of return [LO4];Grant Hillside Homes, Inc., has;preferred stock outstanding that pays an annual dividend of $10.30. Its price;is $167.;What is the required rate of;return (yield) on the preferred stock?(Round;your answer to 2 decimal places. Omit the "%" sign in your;response.);Rate of return;%;13.;value:1.00;points;Problem 10-28 Common stock value [LO5];Laser Optics will pay a common;stock dividend of $3.20 at the end of the year (D1). The required;rate of return on common stock (Ke) is 20 percent. The firm has a;constant growth rate (g) of 10 percent.;Compute the current price of the;stock (P0).(Round;your answer to 2 decimal places.Omit the "$" sign in your response.);Current price;$;14.;value:2.00;points;Problem 10-29 Common stock value under different market;conditions [LO5];Ecology Labs, Inc., will pay a;dividend of $6.80 per share in the next 12 months (D1). The;required rate of return (Ke) is 15 percent and the constant growth;rate is 5 percent.(Each question is independent of the others.);(a);Compute the price of Ecology Labs;common stock.(Round your intermediate and final answer to 2;decimal places. Omit the "$" sign in your response.);Price;$;(b);Assume Ke, the required;rate of return, goes up to 20 percent, what will be the new price?(Round your intermediate and final answer to 2;decimal places. Omit the "$" sign in your response.);New price;$;(c);Assume the growth rate (g) goes up;to 7 percent, what will be the new price? Kegoes back to its;original value of 15 percent.(Round your intermediate and final answer to 2;decimal places. Omit the "$" sign in your response.);New price;$;(d);Assume D1is $7.50, what will be the new price? Assume Keis;at its original value of 15 percent and g goes back to its original value of;5 percent.(Round your intermediate and final answer to 2;decimal places. Omit the "$" sign in your response.);New price;$;15.;value:2.00;points;Problem 10-31 Common stock value based on determining growth;rate [LO5];Justin Cement Company had the;following pattern of earnings per share over the last five years;Year;Earnings;per share;2006;$;10.00;2007;10.50;2008;11.03;2009;11.58;2010;12.16;The earnings per share have grown;at a constant rate (on a rounded basis) and is expected to do so in the;future. Dividends represent 40 percent of earnings.;(a);Project earnings and dividends for;the next year (2011).(Round yourintermediate and final answers to 2 decimal places. Omit the;$" sign in your response.);2011;Earnings;$;Dividend;$;(b);If the required rate of return (Ke);is 13 percent, what is the anticipated stock price (P0) at the;beginning of 2011?(Round yourintermediate and final answers to 2 decimal places. Omit the;$" sign in your response.);Anticipated stock;price;$;check;my workeBook;Linkreferences;16.;value:1.00;points;Problem 10-32 Common stock required rate of return [LO5];A firm pays a $9.80 dividend at;the end of year one (D1), has a stock price of $137, and a;constant growth rate (g) of 5 percent.;Compute the required rate of;return (Ke).(Round yourintermediateand final answerto 2 decimal places. Omit the "%" sign in your;response.);Rate of return;%;17.;value:4.00;points;Problem 10-35 Common stock value based on PV calculations [LO5];Beasley Ball Bearings paid a $4;dividend last year. The dividend is expected to grow at a constant rate of 4;percent over the next four years. The required rate of return is 16 percent;(this will also serve as the discount rate in this problem). UseAppendix;B.;(a);Compute the anticipated value of;the dividends for the next four years.(Round your intermediate calculations and final answers to 3;decimal places. Omit the "$" sign in your response.);Anticipated;value;D1;$;D2;$;D3;$;D4;$;(b);Calculate the present value of;each of the anticipated dividends at a discount rate of 16 percent.(Round "PV Factor", intermediate calculations and;final answers to 3 decimal places. Omit the "$" sign in your;response.);PV;of;dividends;D1;$;D2;D3;D4;Total;$;(c);Compute the price of the stock at;the end of the fourth year (P4).(Round "PV Factor", intermediate calculations and final;answer to 3 decimal places. Omit the "$" sign in your response.);Price of the stock;$;(d);Calculate the present value of the;year 4 stock price at a discount rate of 16 percent.(Round "PV Factor", intermediate;calculations and final answer to 3 decimal places. Omit the "$;sign in your response.);Price of the stock;(discounted);$;(e);Compute the current value of the;stock.(Round;PV Factor", intermediate calculations and final answer to 3;decimal places. Omit the "$" sign in your response.);Current value;$;(f);Use formula given below to show;that it will provide approximately the same answer as parte.(Omit the "$" sign in your response.);P0;=;D1;Ke? g;Current value;$;(g);If current EPS is equal to $5.329;and the P/E ratio is 1.2 times higher than the industry average of 6, what;would the stock price be?(Round your intermediate calculations and final;answers to 2 decimal places. Omit the "$" sign in your response.);Stock price;$;(h);By what dollar amount is the stock;price in partgdifferent from the stock price in partf?(Input the amount as a positive value. Round;intermediate calculations and final answer to 2 decimal places. Omit the;$" sign in your response.);Amount;$;(i);In regard to the stock price in;partf, indicate;which direction it would move if;(1);D1increases;(Click to select);Stock price decreases;Stock price increases;(2);Keincreases;(Click to select);Stock price increases;Stock price decreases;(3);g increases;(Click to select);Stock price decreases;Stock price increases;18.;value:1.00;points;Problem 11-2 Cost of capital [LO2];Speedy Delivery Systems can buy a;piece of equipment that should provide an 6 percent return and can be;financed at 3 percent with debt. The CEO likes earning more than the cost of;debt, and he thinks this would be a good deal. The firm can also buy a;machine that would yield a 13 percent return but would cost 15 percent to;finance through common equity. Earning less than the cost of equity sounds;bad to the CEO. Assume debt and common equity each represent 50 percent of;the firm?s capital structure.;(a);Compute the weighted average cost;of capital.(Round your intermediate and final answers to 1;decimal place. Omit the "%" sign in your response.);Weighted average cost;of capital;%;(b);Which project(s) should be;accepted?;Piece of equipment should be;financed.;New machine should be financed.;19.;value:1.00;points;Problem 11-3 Effect of discount rate [LO2];A brilliant young scientist is;killed in a plane crash. It was anticipated that he could have earned;$260,000 a year for the next 25 years. The attorney for the plaintiff?s;estate argues that the lost income should be discounted back to the present;at 5 percent. The lawyer for the defendant?s insurance company argues for a;discount rate of 10 percent.;What is the difference between the;present value of the settlement at 5 percent and 10 percent? Compute each one;separately.UseAppendix;D.(Round "PV Factor" to 3 decimal;places. Round your answers to the nearest dollar amount. Omit the;$" sign in your response);Present;value;PV at 5% rate;$;PV at 10% rate;Difference;$;20.;value:1.00;points;Problem 11-5 Aftertax cost of debt [LO3];Calculate the aftertax cost of;debt under each of the following conditions.(Round;your answers to 2 decimal places. Omit the "%" sign in your;response.);Yield;Corporate;tax rate;Cost;of debt;a.;4.0;%;10;%;%;b.;6.6;20;c.;6.0;20

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