# B since complex systems bonds were issued there may

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inflation is used to maintain the ability to purchase the same number of socks. b. Since Complex Systems' bonds were issued, there may have been a shift in the supply-demand relationship for money or a change in the risk of the firm. When the required return is equal to the coupon rate, the bond value is equal to the par value. In contrast in part a above, if the required return is less than the coupon rate, the bond will sell at a premium (its value will be greater than par).
CH 6 Q 3(P6-8) CH 6 Q 4(P6-10) 1 yr rate of return 8% debentures 1727 2 yr rate of return 8.50% principal value 1,727,000 rate of return next yr 9.00% coupon interest rate 9% par value 1000 tax bracket 34% annual interest payment 90 total interest expense 155,430 after tax interest cost 102,584 CH 6 Q 7(P6-18) CH 6 Q 8(P6-19) coupon interest rate 8% coupon interest rate 15% annual coupon rate 80 required return par value 1000 bond A 12% required return 6% 15% YEAR BOND VALUE 18% 15 \$1,194.24 bond B 12% 12 \$1,167.68 15% 9 \$1,136.03 18% 6 \$1,098.35 3 \$1,053.46 1 \$1,018.87 CH 6 Q 10(P6-22) Yield to maturity Par value Coupon interest rate Years to maturity 13% 5000 18% 8 sell at a premium Year Cash Flow Yield to maturity 0 -5430 9% 1 900 ould sell at par 2 900 3 900 4 900 5 900 6 900 7 900 8 5900 c. The greater the length of time to matu re d. She should purchase bond A because its b. the bond value approaches the par value b. The market value of the bond approaches its par value approaches the coupon interest rate
CH 6 Q 5(P6-11) par value 1000 coupon rate 5.80% price quote 114.77% YTM 4.703% bond price 1,147.72 annual interest payment 58 current yield 5.05% years annual coupon rate par value bond value 3 150 1000 \$1,072.05 3 150 1000 \$1,000.00 3 150 1000 \$934.77 13 150 1000 \$1,192.71 13 150 1000 \$1,000.00 13 150 1000 \$852.71 Current value PMT YTM 5430 900 16.02% c. The bond is selling at a premium because its price is greater than the par value. d. The yield to maturity is lower than the current yield because the former includes \$48.36 in price depreciation between today and the May 15, 2027 bond maturity. urity, the more responsive the market value of the bond is to changing equired returns, and vice versa. price is less responsive to changes in interest rates. e as the time to maturity declines. The yield-to-maturity e as the time to maturity declines.
CH 7 Q 1 shares of common stock 2,400,000 shares oustanding 1,300,000 held as treasurey stock 400,000 wishes to raise for a plant expansion 48,000,000 sale of new common stock \$40 1,100,000 total number of shares needed 1,200,000.00 additional number of shares needed 100,000.00 CH 7 Q 5 (P7-15) annual dividend (D0) \$2.24 required return 16% dividents grow annually 15% N 3 constant annual growth rate 5% N 4 D1 \$2.58 D2 \$2.96 D3 \$3.41 PV D1-D3 \$6.60 D4 \$3.58 P3 \$32.52 PV of P3 \$20.83 MV \$27.44 max # of new shares of common stock that the firm can sell without receiving further authorization is must amend its corporate charter to authorize the issuance of additional shares.
CH 7 Q 2 Case Type Par value A Cumulative \$150.00 B Noncumulative \$50.00 C Noncumulative \$140.00 D Cumulative \$100.00 E Cumulative \$60.00 CH 7 Q 6 Offering price per share \$1.70 7% 16% Market value of all debt \$2,000,000.00 Market value of preferred stock \$950,000.00 1,100,000 New growth rate 8% Original Growth Rate Year(t) FCF Present value(PV) 2020 \$600,000.00 \$517,241 2021 \$650,000.00 \$483,056 2022 \$750,000.00 \$480,493 2023 \$900,000.00 \$497,062 2024 to infinity \$10,700,000.00 \$5,909,515 Totals \$7,887,367 Common stock \$4,937,367 Value per share \$4.49 Growth rate of FCF, beyond 2023 to infinity Weighted average cost of capital