BP Haus is going to finance a new factory and needs to raise $10 million today. An investment bank has suggested issuing 10-year bonds, with a 6% APR semi-annual coupon, and a face value of $11 million. What yield to maturity is the investment bank placing on BP Haus bonds if they offer with these terms (Express as an EAR)? (Note: face value is $11 million) 7.3% 3.65% None are correct 7.43%

BP Haus is going to finance a new factory and needs to raise $10 million today. An investment bank has suggested issuing 10-year bonds, with a 6% APR semi-annual coupon, and a face value of $11 million. What yield to maturity is the investment bank placing on BP Haus bonds if they offer with these terms (Express as an EAR)? (Note: face value is $11 million) 7.3% 3.65% None are correct 7.43%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 16P

See similar textbooks

Similar questions

A company must make a payment of $2500 in 5 years. Four-year zero coupon bonds and seven-year zero coupon bonds are available for investment. These bonds could be purchased in any quantity and the yield rate is 3% effective. Let A and B be the face values of the 4-year and 7-year zero-coupon bonds, respectively, that are purchased to satisfy full immunization against any changes in interest rates. Find A. Possible Answers A 1262 1431 C 1618 D 1725 E 1962
Airbutus Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 8% coupon bonds on the market that sell for $930, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? How can I solve it with financial calculator method?
Global Exporters wants to raise $31.3 million to expand its business. To accomplish this, it plans to sell 15-year, $1,000 face value, zero coupon bonds. The bonds will be priced to yield 6.5 percent. What is the minimum number of bonds it must sell to raise the money it needs? Assume semiannual compounding. 69,800 86,029 81,705 O 74,907 O 73,255
(Cost of debt) Gillian Stationery Corporation needs to raise $610,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 7.9 percent with interest paid semiannually and a 15-year maturity. Investors require a rate of return of 10.7 percent. a. Compute the market value of the bonds. b. How many bonds will the firm have to issue to receive the needed funds? c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent? a. The market value of the bonds is $ (Round to the nearest cent.) b. The number of bonds that the company needs to sell isbonds. (Round up to the nearest integer.) c. The firm's after-tax cost of debt is. (Round to two decimal places)
A company wants to issue new 10-year bonds for some much needed expansion projects. The company currently has 11 percent bonds on the market that sell for $1,130.08, make semiannual payments, and mature in 10 years. What should the coupon rate be on the new bonds if the company wants to sell them at par? Please use a HP 10bii+ Financial Calculator
P1)The interest rate is 8.3%. A company wants to sell a one-year bond for $1000 today. There is a 2% chance the company will default on its bond and only be able to repay 94% of the $1000 principal amount (and none of the coupon). What coupon rate must the company set for the bond? Give your answer in percentage to the nearest 0.1 percent. P2)*A project will have one of the following time 1 payoffs, each with the corresponding probability. $99 with probability 13%.$314 with probability 58%.$506 otherwise. The discount rate is 9.8%. The project is partially financed with debt with a time 1 promised payoff of $218. What is the promised return on the debt? Give your answer in percentage to the nearest 0.1 percent.
Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds with a par value of $1,000 each to raise the money. The required return on the bonds will be 8 percent. Assume semiannual compounding periods. a. What will these bonds sell for at issuance? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Repeat part (b) using the straight-line method for the interest deduction. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. b. C. Issue price First year interest deduction Last year interest deduction Interest deduction $ $ 208.29 39.58
Kindly answer using the formula: Monster Limos plans to issue new bonds that have the same yield as its existing bonds, which have a coupon rate of interest equal to 4 percent (paid semiannually), eight years remaining until maturity, and a $1,000 maturity value. The existing bonds are currently selling for $886 each. What should be the coupon rate for the new bonds? If the firm’s marginal tax rate is 40 percent, what will be the after-tax cost of debt associated with the new debt (bonds)?
AirbutusCo. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 8% coupon bonds on the market that sell for $930, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? pls solve with a formula and not excel formula. show workings
Stuck on this question. Long-term Borrowing Company (LBC) is raising new capital by selling bonds. Its investment bankers have estimated that if the company sets the coupon rate for the new bonds at 8% paid semiannually, it can sell them in the market for $1,102 per bond. The new bonds will have 15 years to maturity. The bankers have estimated that the cost of selling the new bonds will be $25 per bond. What is the company’s after-tax cost of new debt for this new financing if its tax rate is 30 percent? I see in another solution that the before tax cost of debt is 7.1546%. I don't understand the calculation to get that percentage.
BroadStreet Bank has just been given a $10,000,000, 5 year CD deposit by the local municipality. The bank has agreed to pay 8%, compounded annually on this deposit. The bank wishes to choose one debt investment to cover this deposit, so that they have earnings from this investment to just cover the interest and CD principal when it comes due in 5 years. They are looking at the following 3 possibilities for investment: Bond Maturity Coupon YTM Duration1 5 0.00% 8.00% 5.002 6 7.90% 8.00% 5.003 7 17.15% 8.00% 5.00 • Show that each of three investment will cover the future payout required by the CD, even if market rates increase or drop by ½ % by the end of 5 years
3. A P1,500-bond which will mature in 10 years and with a bond rate of 15% payable annually is to be redeemed at par at the end of this period. If it is sold now for P1,390, determine the yield at this price. 4. A young mechanical engineer is considering establishing his own small company. An investment of P400,000 will be required, which will be recovered in 15 years. It is estimated that sales will be P800,000 per year and that operating expenses will be as follows: Materials P160,000 per year Labor P280,000 per year P40,000 + 10% of sales per year P60,000 per year Overhead Selling expense The man will give up his regular job paying P216,000 per year and devote full time to the operating of the business; this will result in decreasing labor cost by P40,000 per year, material cost by P28,000 per year and overhead cost by P32,000 per year. If the man expects to earn at least 20% of his capital. Should he invest?