Par Bonds
bond price = face value
YTM = current yield = coupon rate
Recall: current yield = annual coupon/price
Premium Bonds
bond price > face value
YTM < current yield < coupon rate (1)
Discount Bonds
bond price < face value
YTM > current yield > coupon
Chapter 23
7.
In one year, the company will abandon the technology if the demand is low since the value of
abandonment is higher than the value of continuing operations. Since the company is selling
the technology in this case, the option is a put option.
Chapter 20
14. a.
The number of new shares offered through the rights offering is the existing shares
divided by the rights per share, or:
New shares = 1,000,000 / 2
New shares = 500,000
And the new price per share after the offering will be:
P=
Current m
Chapter 29
12. The cost of the acquisition is:
Cost = 250($22) = $5,500
Since the stock price of the acquiring firm is $50, the firm will have to give up:
Shares offered = $5,500/$50 = 110 shares
a.
The EPS of the merged firm will be the combined EPS of t
Chapter 19
11. The price of the stock today is the PV of the dividends, so:
P0 = $0.95/1.14 + $45/1.142 = $35.46
To find the equal two year dividends with the same present value as the price of the stock, we
set up the following equation and solve for the
Chapter17
6. a. The total value of a firms equity is the discounted expected cash flow to the firms
stockholders. If the expansion continues, each firm will generate earnings before interest
and taxes of $2.4 million. If there is a recession, each firm wi
Chapter16
18. Withnodebt,wearefindingthevalueofanunleveredfirm,so:
V=EBIT(1tC)/R0
V=$15,000(1.35)/.17
V=$57,352.94
With debt, we simply need to use the equation for the value of a levered firm. With 50 percent
debt,onehalfofthefirmvalueisdebt,sothevalueof
Chapter16
16. Since Unlevered is an allequity firm, its value is equal to the market value of its outstanding
shares. Unlevered has 7 million shares of common stock outstanding, worth $80 per share.
Therefore,thevalueofUnlevered:
VU=7,000,000($80)=$560,00
Chapter8
5. The price of any bond is the PV of the interest payment, plus the PV of the par value. The fact
that the bond is denominated in euros is irrelevant. Notice this problem assumes an annual
coupon.Thepriceofthebondwillbe:
P=84(cfw_1[1/(1+.076)]15
Chapter6
19. To find the EAC, we first need to calculate the NPV of the incremental cash flows. Wewill begin
withtheaftertaxsalvagevalue,whichis:
Taxesonsalvagevalue=(BVMV)tC
Taxesonsalvagevalue=($015,000)(.34)
Taxesonsalvagevalue=$5,100
Taxonsale
5,100
$