Case Study of Lyons Document Storage Corporation: Bond Accounting

Mr. Shields’ should accept Mr. Fordham’s proposal in relation to the acquisition of Upstate Canning Company, Inc. In this case, Mr. Shields attempts to conclude if he should acquire the company from its owner, Mr. Fordham, using his personal savings of $35,000 in addition to an investment of $65,000 from his associates. Moreover, Mr. Fordham proposes that he will loan Mr. Shields’ $300,000 worth of income bonds, to be repaid in up to 10 years. Mr. Fordham provides Mr. Shields’ with a bond repayment schedule which allows Mr. Shields’ to repay the bonds at a discount if he meets the wishes to repay the bonds back early. Mr. Shields’ faces a

The value of a bond is found as the present value of interest payments plus

(d) $1 billion 10 year debenture @ 7.5% with 18.18 warrants at $ 55 exercisable until 1988.

GE has a face value of $98.40 and the coupon is 0.042%, which is equivalent to $0.00042, which is no money, rounded to the nearest hundredths. The maturity of the bond is 5 years (5/17/2021), so Billy would get $500.00 back from the GE bond issuers. Billy would make a dividend of $8 by buying the bond at a lower price than the returned money. PEP has a face value of $99.60 and the coupon percentage is 0.467%, which is 0.00467 and 0.01 rounded to the nearest hundredths. The maturity is 2 years (04/30/2018), so Billy would get $200.02 back and make a dividend of

Southlake Corporation issued $900,000 of 8% bonds on March 1, 20X1. The bonds pay interest on March 1 and September 1 and mature in 10 years. Assume the independent cases that follow.

The bond principal repayment will be $6.25 million annually. The cash dividends will be $7.5 million annually on additional stock.

- The Bet-r-Bilt Company has a 5-year bond outstanding with a 4.30 percent coupon. Interest payments are paid semi-annually. The face amount of the bond is $1,000. This bond is currently selling for 93 percent of its face value. What is the company's pre-tax cost of debt?

The bonds have 20 years to maturity, pay interest at 9.3%, have a par value of $1,000 and are currently selling for $890.

a. Should Harris Seafoods enter the shrimp processing business by building the new plant? Please assume the firm will be unable to use the Industrial Revenue Bond financing mentioned at the end of the case (we will return to this topic in a later case).

31, 2004) was computed, then the total Accounts Receivable balance would be $4,578,008.14. This indicates

The company lost money almost every year since its leveraged buyout by Coniston Partners in 1989. The income generated was not sufficient to service the interest expenses of the company which stood at $2.62B in 1996. From Exhibit 1, we can say that interest coverage ratio computed as EBIT / Interest Expense was 1.31 in 1989 and has been decreasing over years and currently stands at 0.59. This raises a question of how the company can meet its interest payments without raising cash or selling assets.

In January 1980, the management of the Marriott Corporation found itself in an interesting dilemma: not only did the corporation have considerable excess debt capacity, but projections of future operations and cash flows indicated that this capacity was on the rise. For Marriott, excess debt capacity was viewed as comparable to unused plant capacity because the existing equity base could support additional productive assets. Management was therefore faced with two problems. First, it needed to determine the amount of funds that would be available if Marriott's full debt capacity were utilized. Second, management needed to decide whether to invest excess funds in new or existing businesses, or to return them to the companies shareholders

2. What were the yields on the two representative outstanding Heinz-debt issues as of the end of April 2010? What were they one year earlier?

The market value of debt was calculated using the existing yield of maturity on a 5 yar bond issued on a private placement basis on July 1, 2000. With the coupon of 5.75% and the discount price of 97, YTM for this bond is 6.62%. With a discount price being 97, the market value of debt is 17,654M.

Both of these factors cause a decrease in FCF, than in the terminal value, and ultimately in the total discounted present value. Final valuation through the “pessimistic” approach amounts to NPV (FCF) $34.60 million + PV (TV) $37.9 million equaling total PV $72.48 million.