Devoir France Télécom

4. Your corporation has a Book Value of long-term debt = $2,000,000. The bonds were issued with a original maturity of 20 years and were sold at Par but the issue occurred 10 years ago. Coupon rate = 8% and paid semiannually. The price is 98 (Hint: this is way bonds are priced. 25pts

Total debt ratio remained stable in all periods in 2011 and is below 1:1, which is a good indication of the company maintaining its leverage. Interest coverage ratio shows a downward trend in Q2 and Q3 with a slight increase in Q4. These results are derived from an increase in interest expense. These changes are not very significant to the success of the business as the company’s ratio is well above 1.5, which implies the company is not burdened by its debt expenses. Debt/Equity ratio remained stable in all periods with a slight increase in Q4 as a result of increased liabilities.

Let us look at foreign currency, (FCCB) foreign currency convertible bond is issued in a different currency than the issuer’s domestic currency. In other words a company would issue the bond in a different/foreign currency apart from their own national/domestic currency. Therefore the principle payment or

Furthermore, analyzing the company’s profitability ratios, Cartwright Lumber’s profitability is decreasing year to year although net income has increased. From 2001 to 2004, the profit margin decreased from 1.83X to 1.25X while the operating margin decreased from 2.18X to 1.53X. Therefore, the firm’s practicing of continually taken on more debts has not improved their profitability. In calculating the firm’s ROE, we could say that by leveraging the firm, the company has been able to increase the ROE and therefore is more profitable. The firm’s ROE is 11.48%, 12.64%, 12.64% in 2001, 2002 & 2003. However, when we calculate the firm’s ROE for the first quarter of 2004, it has decrease to

One of the reasons the company would want to issue convertible bond would be is the yield that they have to pay generally lower than that of a non-convertible bond. The reason the rate is lower is important because it is indeed a hybrid security where gives the bondholder an investment opportunity in the company in the future, hence making the instrument more attractive to investors (Badraoui & Ouenniche, 2014). Since the instrument is more attractive, a lower yield may be offered that will still garner and peak invested interest in the product (Saunders & Cornett, 2015). Pricing is usually set so as not in the best interest to convert the bond stock unless the company sees an increase of the stock price in the range from 15 to 20 percent from the time the bond was issued (Saunders & Cornett, 2015, p. 187).

A short overview of the relevant data is composed in Appendix 4. The return on equity is very high, it had a large increase in the last three years, due to a higher increase of the net profits (x2.88) than the shareholders’ equity’s increase (x1.77) during the past three years. The management anticipates this in a proper way by investing in more assets, it emerges in a stable asset turnover and financial leverage. Appendix 5 gives a comprehensive operating management analysis.

In a typical convertible bond, the bondholder is given the option to convert the bond into a specified number of shares of stock. The conversion ratio measures the number of shares of stock for which each bond may be exchanged. Stated differently, the market conversion value is the current value of the shares for which the bonds can be exchanged. The conversion premium is the excess of the bond value over the conversion value of the bond. The conversion option in a convertible bond is equity.

When bonds are issued for more than their par value, the premium can be interpreted as an adjustment of the interest rate and transferred to the debt service fund — the fund in which resources for the payment of debt will be accumulated. Although the same interpretation can be placed upon bond discounts, there may be no funds available in the debt service

If the value of the company is getting higher than just after the MBO the debt will be converted before/during a sale or exit. Therefore the value of the convertible debt can be seen as an option (I can’t find exact theory, the book describes bonds to be converted to common stock which can be liquidated on order. In the reader ‘a note on private equity securities’ I can’t match the private equity securities as described ???)

Just looking the figure we can say that company is doing well. 2011 is more favourable than 2011, it is simply because ROE is more in 2011. Furthermore in 2011,

During the year under review, the Company on 8th October 2009 raised Rs. 1,873 crore in India through the Qualified Institutions Placement route for general corporate purposes. The Company also issued unsecured Foreign Currency Convertible Bonds (FCCBs) of USD 200 million to international investors. The FCCBs are convertible into equity shares of the Company, and if not converted, are repayable at the end of 5 years. In this year, the Company repaid a long term Rupee loan of Rs. 85 crore.

2) High leverage. The average of Debt to Total Assets ratio is higher than 60%. 3) Decreasing ROE. The Return on Equity has decreased from 30.46% to 18.72% from 2011 to 2015.

They provide the upside potential of common stock and the downside protection of a bond - The upside potential occurs because convertible bonds contain an option to buy stock by simply surrendering the bond. If the stock price increases, the convertible bonds gain in value due to the increase in value of the stock into which it can be converted. The downside protection occurs because, irrespective of what happens to the stock, the price fo the bond will not decline below what it would be worth as a straight bond.

The second option is choosing the currency of swiss franc. The cost in euros is EUR1,153 million. This amount was computed by first converting the EUR750 million into swiss franc. When the principal amount was converted, this will be used to get the payment for each year. The last year which is year 10, the payment for that year will be added to the principal to get 1,130 million swiss franc. This amount will be converted into euros to get the total cost of the bond.

The bond market is one of the fixed-income markets that it is deals in with transaction of long term fixed-income securities. Moreover, the bond is one of the financial instruments and then the financial instruments are generally regarded as securities. In the bond market, there are two bonds familiar to mass investors. One is called government bonds, and another one is called corporate bonds. Firstly, as its name, government bonds are issued by government with maturities up to about 30 years. Usually, medium term bonds and long term bonds pay out fixed amounts of coupon payments in semi-annually during the repayment period. But, the index-linked bonds pay out alterable amounts of coupon payments in semi-annually because of the changes in inflation. The reason of government bonds are always have a lot of attraction to investors is that investors are generally referred to government bonds as bonds being free from default risk. With this characteristic, government bonds are safer than most other financial instruments to invest. However, the high return always with the high risk and vice versa that government bonds offers lower yields. Secondly, the corporate bonds is the another one that are concerned more by investors in daily transaction activities. There are three main sources for corporates to raising finance for their investment projects, they are: retained earnings, non-marketable debt