A-3 (Coverage ratio) The firm in the two preceding problems also had $6 million of principal repayments during the latest 12 months. Its marginal tax rate is 40%. Calculate the debt service coverage ratio.

A-4 (WACC with rebalancing) Nathan’s Catering is a gourmet catering service located in Southampton, New York. It has an unleveraged required return of r = 43%. Nathan’s rebalances its capital structure each year to a target of L = 0.52. T* = 0.20. Nathan’s can borrow currently at a rate of r of r = 43%. Nathan’s rebalances its capital structure each year to a target of L = 0.52. T* = 0.20. Nathan’s can borrow currently at a rate of rd = 26%. What is Nathan’s WACC?

WACC = r - T* L rd [(1 + r) / (1 + rd)]
WACC = 0.43 - 0.20 x 0.52 x 0.26 [(1 + 0.43) / (1 + 0.26)] = 0.3993 = 39.93%

A-10 (Dividend adjustment model) Regional Software has made a bundle selling spreadsheet software and has begun paying cash dividends. The firm’s chief financial officer would like the firm to distribute 25% of its annual earnings (POR = 0.25) and adjust the dividend rate to changes in earnings per share at the rate ADJ = 0.75. Regional paid $1.00 per share in dividends last year. It will earn at least $8.00 per share this year and each year in the foreseeable future. Use the dividend adjustment model, Equation (18.1), to calculate projected dividends per share for this year and the next four.

...FIN/571: Corporate Finance
TextProblemSets - Week Two
Chapter Five
Question # 4
Define the following terms: bond indenture, par value, principal, maturity, call provision, and sinking fund.
Bond indenture. Bond indenture is a legal contract for a publicly traded bond. The structure of this contract outline incentives explicitly by detailing responsibilities, constraints, penalties, and oversight required. For example, contracts may specify...

...TextProblemSets
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a
required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?
Number of years (N) = 10, future value (FV) = 1000, interest rate (I/YR) = 9
0.074 * 1000 = 74 = PMT or annual payment, I then pressed CPT on my financial calculator to compute the price of the bond and then pressed PV or present value.
The fair...

...Bonds-1. Interest on a certain issue of bonds is paid annually with a coupon rate of 8%. The bonds have a par value of $1,000. The yield to maturity is 9%. What is the current market piece of these bonds? The bonds will mature in 5 years.
P= CPN x (1/y) {1-[1/(1+y)^n] + [FV/ (1+y)^n]
CPN= 1000 x .08= 80
P= 80 (1/.09) {1- [1/(1.09)^5]} + [1000/(1.09)^5]
= 73.39 (.351) + 649.35
= $675.11
Bonds-2. A certain bond has 12 years left to maturity. Interest is paid annually at a coupon rate of 10%....

...or $24,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If you could earn 12 percent annually, would you still choose the same alternative?
Answer: I found two answers for the same problems. One is bringing the present value to the future and the other is bringing the future value to the present. In each one of them, different solutions were proposed.
A. Present Value to the future
Option 1: $10,000 now with 11%...

...ProblemSets
Chapter 5
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?
Calculating PV factor:
i= required return = 9% = 0.09
n= 10 years
Using Cash Flow of $1000 to calculate present value,
Cash flow= $1000
PV factor = 1/(1+i)^n = 0.42241
PV = $1000*0.42241= 422.41
Using Coupon Rate to calculate present value of...

...PROBLEMSET # 1
Instructions:
1) Open book, open notes limited to only class materials.
2) Unlimited time.
3) This must be reflective of your individual effort. GMU Honor Code applies.
4) The ProblemSet #1 (only the question solutions portion) is due at the end of the day on September 24th.
5) Show all work, as partial credit will be given for each question’s answer. Organize your work so it is easy to...

...Week 2 TextProblemSet
Candy Wungnema
FIN/571
February 5, 2013
Kathleen O’Keefe
Week 2 TextProblemSet
Chapter 5
4. Define the following terms: bond indenture, par value, principal, maturity, call provision, and
sinking fund.
• Bond indenture: A contract for a bond defining specified terms for interest and borrowed capital to be repaid to the lender.
• Par value: “Specifies the amount...

...PROBLEMSET 5:
INTEREST RATES, AMORTIZING LOANS, BOND VALUATION, STOCK VALUATION
1. A typical credit card agreement quotes an interest rate of 18 percent APR. Monthly payments are required. What is the actual interest rate you pay on such a credit card? 2. After carefully going over your budget, you have determined you can afford to pay €632 per month toward a new sports car. You call up your local bank and find out that the going rate is 1 percent per month...

552 Words |
2 Pages

Share this Document

{"hostname":"studymode.com","essaysImgCdnUrl":"\/\/images-study.netdna-ssl.com\/pi\/","useDefaultThumbs":true,"defaultThumbImgs":["\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_1.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_2.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_3.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_4.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_5.png"],"thumb_default_size":"160x220","thumb_ac_size":"80x110","isPayOrJoin":false,"essayUpload":false,"site_id":1,"autoComplete":false,"isPremiumCountry":false,"userCountryCode":"US","logPixelPath":"\/\/www.smhpix.com\/pixel.gif","tracking_url":"\/\/www.smhpix.com\/pixel.gif","cookies":{"unlimitedBanner":"off"},"essay":{"essayId":37172353,"categoryName":"Organizations","categoryParentId":"3","currentPage":1,"format":"text","pageMeta":{"text":{"startPage":1,"endPage":4,"pageRange":"1-4","totalPages":4}},"access":"premium","title":"Text Problem Sets","additionalIds":[17,58,51,10],"additional":["Literature","Business \u0026 Economy\/Industries","Business \u0026 Economy\/Accounting","Geography"],"loadedPages":{"html":[],"text":[1,2,3,4]}},"user":null,"canonicalUrl":"http:\/\/www.studymode.com\/course-notes\/Text-Problem-Sets-1465312.html","pagesPerLoad":50,"userType":"member_guest","ct":10,"ndocs":"1,500,000","pdocs":"6,000","cc":"10_PERCENT_1MO_AND_6MO","signUpUrl":"https:\/\/www.studymode.com\/signup\/","joinUrl":"https:\/\/www.studymode.com\/join","payPlanUrl":"\/checkout\/pay","upgradeUrl":"\/checkout\/upgrade","freeTrialUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fcheckout%2Fpay%2Ffree-trial\u0026bypassPaymentPage=1","showModal":"get-access","showModalUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fjoin","joinFreeUrl":"\/essays\/?newuser=1","siteId":1,"facebook":{"clientId":"306058689489023","version":"v2.8","language":"en_US"},"analytics":{"googleId":"UA-32718321-1"}}