Question Details

FIN 571 Week 4 Connect Problems

Complete the Week 4 Connect problems.
 1.
 
Microhard has issued a bond with the following characteristics:
 
Par: $1,000
Time to maturity: 16 years
Coupon rate: 12 percent
Semiannual payments
 
Calculate the price of this bond if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):
  
 	 	Price of the Bond
a.	12 percent	$    

b.	15 percent	$    

c.	9 percent	$   

________________________________________

 

 2.
 
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to maturity, and a coupon rate of 6.1 percent paid annually.
 
If the yield to maturity is 7.2 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Bond price	€    


 

 3.
Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 5.4 percent. The bonds make semiannual payments. If these bonds currently sell for 85 percent of par value, what is the YTM?(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
  YTM	  % 


 

 4.
 
The next dividend payment by ECY, Inc., will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent, forever. The stock currently sells for $39 per share.
  
What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 
  Required return	  %  


 


 5.
The Starr Co. just paid a dividend of $1.95 per share on its stock. The dividends are expected to grow at a constant rate of 3 percent per year, indefinitely. Investors require a return of 11 percent on the stock.
  
What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Current price	$    

 
What will the price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Stock price	$    

 
What will the price be in 6 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Stock price	$    


 
 6.
Ayden, Inc., has an issue of preferred stock outstanding that pays a dividend of $3.55 every year, in perpetuity. This issue currently sells for $91 per share.
 
What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 
  Required return	  %  


 

 7.
Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom stock?


 8.
The risk premium for an individual security is computed by:


 9. 
 
The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?


 10.
 
Mullineaux Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its cost of equity is 14 percent, and the cost of debt is 8 percent. The relevant tax rate is 35 percent.
 
What is the company- WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
  WACC	  %  


 


11.
Central Systems, Inc. desires a weighted average cost of capital of 8 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 12 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?


12.
 
Filer Manufacturing has 5 million shares of common stock outstanding. The current share price is $71, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value $65 million, a coupon of 6 percent, and sells for 96 percent of par. The second issue has a face value of $45 million, a coupon of 7 percent, and sells for 105 percent of par. The first issue matures in 21 years, the second in 5 years.
 
a.	What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
 
  	 
  Equity / Value	   

  Debt / Value	   

________________________________________
 
b.	What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
 
    	  
  Equity / Value	   

  Debt / Value	   

________________________________________
 
c.	Which are more relevant?
 	 
 	Market value weights

 

 13.
Titan Mining Corporation has 8.5 million shares of common stock outstanding and 250,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.25, and the bonds have 15 years to maturity and sell for 114 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 4 percent, and the company- tax rate is 35 percent.
  
a.	What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
 
 	Weight
  Debt	   

  Equity	   

________________________________________
  
b.	If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 
  Discount rate	 
 %