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The company could issue $3,500,000 of long-term bonds, due in 4 years with a stated rate of interest, paid semiannually, of 6%. The market rate for...

1. The company could issue $3,500,000 of long-term bonds, due in 4 years with a stated rate of interest, paid semiannually, of 6%. The market rate for similar debt is 8%. 

2.The company could issue $3,000,000 of long-term bonds, due in 6 years with a stated rate of interest, paid semiannually, of 6%. The market rate for similar debt is 4%.

3.The company could issue 500,000 additional shares of $1 par value common stock for $7 per share The company will begin paying a dividend to all the common shareholders of $0.20 per share and this will continue into the future.

Top Answer

1. Cash received = PV of future bond payments discounted at market rate = $3,000,000*4%/2 * PVAF of 3%(6%/2) at 10 periods (5... View the full answer

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