sincere - = 1,181.87 c. Number of Bonds = 87 . 181 , 1 $...

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(Cost of dept) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10 year maturity. The investors require a 9 percent rate of return. a. Compute the market value of the bonds. b. What will the net price be if flotation costs are 10.5 percent of the market price? c. How many bonds will the firm have to issue to receive the needed funds? d. What is the firm’s after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent? a. Price (P 0 ) = = + 10 1 t t 0.09) (1 $140 + 10 ) 09 . 0 1 ( 000 , 1 $ + = $140(6.418) + $1000(.422) = $1,320.52 b. NP 0 = $1,320.52(1 - 0.105)
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Unformatted text preview: = 1,181.87 c. Number of Bonds = 87 . 181 , 1 $ 000 , 500 $ = 423 Bonds d. Cost of debt: $1,181.87 = = + 10 1 t t d ) k (1 $140 + 10 d ) k 1 ( 000 , 1 $ + k d = 10.92% debt of cost tax After-= 10.92%(1 - 0.34) = 7.21% 2. Fijisawa, Inc. Year Cash Flow ($1,950,000) 1 $450,000 2 $450,000 3 $450,000 4 $450,000 5 $450,000 6 $450,000 a) NPV $68,663 b) Profitability Index: Present Value of Future Cash Flows $2,018,663.37 Initial Investment $1,950,000 Profitability Index 1.04 c) IRR 10.17% d) 3 . Free cash flow = EBIT *[1-Tax] + Depreciation -changes in Net working capital - capital expenditure = $900000 *[1-0.34]+300000 - 10000 = $594000+300000-10000 = $884000...
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This note was uploaded on 02/12/2012 for the course FIN 200 200 taught by Professor Markempasis during the Spring '09 term at University of Phoenix.

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sincere - = 1,181.87 c. Number of Bonds = 87 . 181 , 1 $...

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