Wilderness World (WW) needs to raise $84 million in debt. To issue the debt, WW must pay its underwriter a fee equal to 3% of the issue. The company estimates that other expenses associated with the issue will total $487,000. If the face value of each bond is $1,000, how many bonds must be issued to net the needed $84 million?

Wilderness World (WW) needs to raise $84 million in debt. To issue the debt, WW must pay its underwriter a fee equal to 3% of the issue. The company estimates that other expenses associated with the issue will total $487,000. If the face value of each bond is $1,000, how many bonds must be issued to net the needed $84 million?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter3: The Financial Environment: Markets, Institutions And Investment Banking

Section: Chapter Questions

Problem 19PROB

See similar textbooks

Similar questions

Mom's Motel Corporation (MM) plans to issue bonds to raise $175 million that it needs to support future operations. MM's investment banker will charge flotation costs of 2.5% of the total amount issued to help MM raise the funds. In addition, MM will incur other costs associated with the issue that equal $500,000. The market value of each bond at issue time will be $1,000. How many bonds must GM sell to net $175 million that it needs?
SMC will be issuing bonds with a face value of P100,000 through an underwriter. The underwriter will be issuing the bonds at 106 but will charge 7% on face amount. The bonds will be irredeemable and will pay 8% annually. If the tax rate is 25%, what is the effective cost of the bonds?
ABC company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. The company has also issued 4,000 new bond issues with an 8 percent coupon, paid semi-annually, and matures in 10 years. The bonds were sold at par and incurred a floatation cost of 2 percent per issue. 1. Does the New loan have anything to do with calculating the cost of debt? 2. Should the new loan be considered in the calculation of the weighted average cost of capital (WACC) of the company? if so how should it be added to the WACC formula.
Jewel Regal Cars (JRC) must raise $240 million to support operations. To do so, JRC plans to issue new bonds. Investment bankers have informed JRC that the flotation costs will be 4% of the total amount issued. If the market value of each bond is $1,000, how many bonds must JRC sell to net the $240 million that it needs? There are no other issuing expenses or fees in the offering.
Hassan Mustafa realized that when the bonds mature on January 20, 2041, there must be $5,200,000 available to repay the bondholders. To have enough money on hand to meet this obligation, He suggested that ScanSoft set up a sinking fund (an interest-bearing account into which payments are made at regular intervals to provide a desired sum of money at a specified future time) using a specially designated savings account. The company earns interest of 1.6% compounded semi-annually on this sinking fund account. ScanSoft began making semi-annual payments to the sinking fund on July 20, 2021.ScanSoft issued the bonds, sold them all to the investment dealer, and used the money raised to continue its research and development.1. How much would an investor have to pay for one of these bonds to earn 4.4% compounded semi-annually?2.3. Suppose ScanSoft discovers on January 20, 2031, that it can earn 2.5% interest compounded semi-annually on its sinking fund account.a. What is the balance in the…
ABC Corporation was able to issue 20-year P10,000,000-face value bonds with interest of 8% per annum, due every quarter. It incurred issuance cost of P350,000 but it got net proceeds of P10,200,000 from the issuance. The annual effective cost of these bonds is closest to
The Bowman Corporation has a bond obligation of $24 million outstanding, which it is considering refunding. Though the bonds were initially issued at 13 percent, the interest rates on similar issues have declined to 11.7 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 9 percent call premium on the old issue. The underwriting cost on the new $24,000,000 issue is $540,000, and the underwriting cost on the old issue was $430,000. The company is in a 35 percent tax bracket, and it will use an 12 percent discount rate to analyze the refunding decision. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Calculate the present value of total outflows.(Do not round intermediate calculations and round your answer to 2 decimal places.) Calculate the present value of total inflows. (Do not round intermediate calculations and round…
Cronan, Inc., sells $1,000,000 general obligation bonds for 98. The interest rate on the bonds, paidquarterly, is 6 percent. Calculate (a) the amount that the company will actually receive from thesale of the bonds, and (b) the amount of both the quarterly and the total annual cash interest thatthe company will be required to pay.
The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $13,000,000 bond issuance, the Electric Mixer Division used $9,500,000 and the Electric Lamp Division used $3,500,000 for expansion. Interest costs on the bond totaled $975,000 for the year. What amount of interest costs should be allocated to the Electric Mixer Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
If company A wants to raise 20-24million through bonds, and company B wants to invest in company A. In the conditions company A currently pays semi-annual interest of $100, as the bonds age for 30 years and the value is $2000per bond and interest is 16%. 1) What cash flow would need to be expected for company B to purchase the bond in the fifth and the final payment. 2)If the value of the bond was equal to $2400 should company B invest in the bond of company A. Provide all calculations and formulas used for pricing.
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 9 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.6 percent annually. What is the company's pretax cost of debt? If the tax rate is 24 percent, what is the aftertax cost of debt? Pretax cost of debt: __________% Aftertax cost of debt: __________%
Harper’s Dog Pens, Inc. with the help of its investment bank, recently issued $199.1 million of new debt. The offer price on the debt was $1,000 per bond and the underwriter’s spread was 6 percent of the gross proceeds. Calculate the amount of capital funding Harper’s Dog Pens raised through this bond issue. (Enter your answer in dollars not in millions.