wants to issue bonds for investment purposes. Loptech has one of the best credit ratings in the industry. Market rates for debt instruments average at .5% interest. Based on its credit rating, Loptech would likely sell bonds that pay _____. A. Indeterminable with current information B. 0.25% C. 0.5% D. 0.75%

wants to issue bonds for investment purposes. Loptech has one of the best credit ratings in the industry. Market rates for debt instruments average at .5% interest. Based on its credit rating, Loptech would likely sell bonds that pay _____. A. Indeterminable with current information B. 0.25% C. 0.5% D. 0.75%

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 11PC: Whirlpool manufactures and sells home appliances under various brand names. IBM develops and...

See similar textbooks

Similar questions

You plan to purchase debenture bonds from one of two companies in the same industry that are similar in size and performance. The first company has $800,000 in total liabilities, and $1,200,000 in equity. the second company has $600,000 in total liabilities, and $400,000 in equity. 2. Which company's debenture bonds are less risky based on the debt-to-equity ratio? Explain. Show your calculations to support your decision.
1. Companies pay rating agencies such as Moody’s and Standard & Poor’s to rate their bonds,and the costs can be substantial. However, companies are not required to have their bondsrated in the first place; doing so is strictly voluntary. Why do you think they do it?2. Bond CBA is a premium bond making annual payments. The bond has a coupon rate of7.5%, a YTM of 6% and has 13 years to maturity. Bond ANZ is a discount bond making annualpayments. This bond has a coupon rate of 6%, a YTM of 7.5% and also has 13 years tomaturity. Given that the face value is $1000 for each bond, what are the prices of these bondstoday? If interest rates remain unchanged, what do you expect the prices of these bonds to bein three years? In eight years? In 12 years? In 13 years? What’s going on here? Illustrate youranswers by graphing bond prices versus time to maturity.
Meyer of Georgia wants to issue bonds to pay to make electric Avenue higher the current interest rate on corporate bonds with the same credit risk is 8% and the take rate is 25% than Georgia can issue bonds playing what percent?
Suppose a company is choosing between bank loans and bonds. The interest rate in the bank loan is 3.5%, and an investment bank predicted that the company will pay close to 4% to issue a bond with the same maturity. In addition, fees are estimated to be higher for the bond issuance than for the bank loan. Explain why this company may still decide to issue the bond rather than borrowing through a bank.
1. If a bond has a credit rating of A, which of the following is not true: A) The bond has more risk than a government bond B) The bond is considered a junk bond C) The bond is less risky than a BBB bond D) The bond is currently making all of its debt payments 2. Assume you have a CDO which had an equity trache that is 5% of all assets and a Mezzanine tranche that is 20% of all assets and a Senior tranche that is 75% of all assets. If the firm assets lose 10% of their total value, what does this mean for the Mezzanine tranche? A) They will not be affected B) They will lose 25% of their investment C) They will lose 50% of their investment D) They will lose 100% of their investmenT
D. Standard and Poor’s has issued Orchid Plc with a credit rating of AA and Petunia Plc with a credit rating of BB. The corporate bond issued by Orchid Plc currently has a yield of 3% and the corporate bond issued by Petunia Plc currently has a yield of 4.5%. Based on this information, from which company would an investor buy a bond? Explain your answer..
Western Entertainment is considering issuing bonds to finance its business expansion. The company contacts you, a business consultant charging $200 per hour, to answer the following questions. What are the advantages of issuing bonds over borrowing funds from a bank? What are the advantages of issuing bonds over issuing common stock? How is a bond price determined? Required: Provide answers to Western Entertainment’s questions worthy of your billing rate of $200 per hour.
Whirlpool manufactures and sells home appliances under various brand names. IBM develops and manufactures computer hardware and offers related technology services. Target operates a chain of general merchandise discount retail stores. The data in the following table apply to these companies (dollar amounts in millions). For each firm, assume that the market value of the debt equals its book value. REQUIRED a. Assume that the intermediate-term yields on U.S. government Treasury securities are 3.5%. Assume that the market risk premium is 5.0%. Compute the cost of equity capital for each of the three companies. b. Compute the weighted-average cost of capital for each of the three companies. c. Compute the unlevered market (asset) beta for each of the three companies. d. Assume that each company is a candidate for a potential leveraged buyout. The buyers intend to implement a capital structure that has 75% debt (with a pretax borrowing cost of 8.0%) and 25% common equity. Project the weighted-average cost of capital for each company based on the new capital structure. To what extent do these revised weighted-average costs of capital differ from those computed in Requirement b?
(a) Consider the following pair of bonds which are alike except for the characteristics listed. Bond A Bond B Coupon rate 4% 0% Bond rating AAA BBB Convertible Yes No Discuss which bond should have the higher yield to maturity. (b) Company A is a fast food restaurant selling Ramen.Company B is a manufacturer of beauty products.The operating characteristics of a company is shown below:Cash cycle = -10 daysSuppliers sell their goods to the company on a net 30 days basis Appraise which of the companies, A or B, comes closest to the operating characteristics described above.
Fixed-income securities consist of debt instruments and preferred stock. Bonds are debt securities in which a borrower promises to pay a specified interest rate and principal at a future date. Which of the following types of bonds have the least default risk? Municipal bonds Corporate bonds Treasury bonds Based on the information given in the following statement, answer the questions that follow: In July 2009, Hungary successfully issued 1 billion euros in bonds. The transaction was managed by Citigroup. Who is the issuer of the bonds? Citigroup The Hungarian government Hungary Bank What type of bonds are these? Government bonds Corporate bonds Municipal bonds
On January 1, 2016, Brandon Electronics issued $85 million of 11.5% bonds, dated January 1. The market yield for bonds of maturity issued by similar firms in terms of riskiness is 12.25%. How can Brandon sell debt paying only 11.5% in a 12.25% market?
HeadAche Inc. depends on two sources of financing: bond issues and common stock. In the following table, you can see the market value of these two sources as well as required rates of return: Market Value Required Return Bonds $480,000,000 8.00% Common stock $720,000,000 12.00% Total $1,200,000,000 Other financial information: 1) Using FCFF, what is the present value of the firm, and the present value of the equity?2) Using FCFE, what is the present value of the equity?