EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 3, Problem 14PROB
Summary Introduction
GE needs $345 million to support operations. To raise the needed funds, the firm issued bonds at $1,000 each bond. The flotation cost is 8%. Calculate the number of outstanding bonds to be issued.
Debt financing is the process of raising debt capital by issuing shares to investors due to short-term need or long-term goal or for the future growth of the firm.
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Grand Energy Corporation (GE) plans to issue bonds to raise $299 million. Ge's Investment banker will charge 8 percent of the total amount issued to help raise the funds. The market value of each bond at issue time will be $1,000. How many bonds must GE sell to net $299 million after flotation costs? Assume that fractions of bonds cannot be issued. Round yout answer to the nearest whole number, bonds Show how much of the total amount issued will consist of flotation costs and how much GE will receive after flotation costs are paid. Enter your answers in dollars. For example, on answer of $2 million should be entered as 2,000,000, not 2. Round your answers to the nearest dollar Floation costs $ Net proceeds:
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?
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.
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- On July 1, Somerset Inc. issued $200,000 of 10%, 10-year bonds when the market rate was 12%. The bonds paid interest semi-annually. Assuming the bonds sold at 58.55, what was the selling price of the bonds? Explain why the cash received from selling this bond is different from the $200,000 face value of the bond.arrow_forwardKrystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?arrow_forwardGingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for $103,000. From this information, we know that the market rate of interest was ________. A. more than 7% B. less than 7% C. equal to 7% D. equal to 1.3%arrow_forward
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