Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 24, Problem 13PS
Covenants Alpha Corp. is prohibited from issuing more senior debt unless net tangible assets exceed 200% of senior debt. Currently, the company has outstanding $100 million of senior debt and has net tangible assets of $250 million. How much more senior debt can Alpha Corp. issue?
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Edwards Construction currently has debt outstanding with a market value of $128,000 and a cost of 12 percent. The company has EBIT of $15,360 that is expected to continue in perpetuity. Assume there are no taxes.
a-1.
What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.)
a-2.
What is the debt-to-value ratio? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b.
What are the equity value and debt-to-value ratio if the company's growth rate is 4 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.)
c.
What are the equity value and debt-to-value ratio if the company's growth rate is 9 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.)
On December 31, 2023, Green Bank enters into a debt restructuring agreement with Windsor Inc., which is now experiencing
financial trouble. The bank agrees to restructure a $2.9-million, 10% note receivable issued at par by the following modifications:
1.
Reducing the principal obligation from $2.9 million to $2.76 million
2.
Extending the maturity date from December 31, 2023, to December 31, 2026
3.
Reducing the interest rate from 10% to 8%
Windsor pays interest at the end of each year. On January 1, 2027, Windsor pays $2.76 million in cash to Green Bank. Windsor
prepares financial statements in accordance with IFRS 9.
Assume instead that Windsor follows ASPE. Using (1) a financial calculator or (2) Excel function Rate, calculate the rate of interest
that Windsor should use to calculate its interest expense in future periods. (Hint: Refer to Chapter 3 for tips on calculating.) (Round
answer to 4 decimal places, e.g. 1.2246%.)
Rate of interest
%
National Co. has P5,000,000 in current assets, P3,000,000 in current liabilities, and its initial inventory level is P1,000,000. The company plans to increase its inventory, and it will raise additional short-term debt (that will show up as notes payable on the balance sheet) to purchase the inventory. Assume that the value of the remaining current assets will not change. The company’s bond covenants require it to maintain a current ratio that is greater than or equal to 1.5. What is the maximum amount that the company can increase its inventory before it is restricted by these covenants?
Chapter 24 Solutions
Principles of Corporate Finance
Ch. 24 - Bond terms Use Table 24.1 (but not the text) to...Ch. 24 - Bond terms Look at Table 24.1: a. The AMAT bond...Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Prob. 5PSCh. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 8PSCh. 24 - Prob. 9PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Sinking funds For each of the following sinking...
Ch. 24 - Call provisions a. Look at Table 24.1. Suppose...Ch. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 14PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Convertible bonds Maple Aircraft has issued a 4%...Ch. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 19PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Prob. 22PSCh. 24 - Prob. 23PSCh. 24 - Bank loans, commercial paper, and medium-term...Ch. 24 - Prob. 25PSCh. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 28PS
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