Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. the current stock price for a company is $37 per s

The current stock price for a company is $37 per share, and there are 3 million...

Free

50.1K

Verified Solution

Question

Finance

The current stock price for a company is $37 per share, andthere are 3 million shares outstanding. This firm also has 110,000bonds outstanding, which pay interest semiannually. If these bondshave a coupon interest rate of 7%, 30 years to maturity, a facevalue of $1,000, and an annual yield to maturity of 8.3%, what isthe percent market value of debt for this firm? (Answer to thenearest hundredth of a percent, but do not use a percent sign).

Answer & Explanation Solved by verified expert
3.6 Ratings (629 Votes)

Information provided:

Face value= $1,000

Coupon rate= 7%/2= 3.5%

Coupon payment= 0.035*1,000= $35

Time= 30 years*2= 60 semi-annual periods

Yield to maturity= 8.3%/2= 4.15%

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 35

N= 60

I/Y= 4.15

Press the CPT key and PV to compute the present value.

The value obtained is 857.03.

Therefore, the current price of the bonds is $857.03,

Market value of equity= $37*3,000,000= $111,000,000.

Market value of debt= $857.03*110,000= $94,273,300.

Total firm value= $111,000,000 + $94,273,300

                               = $205,273,300.

Weight of debt in the capital structure=$94,273,300/ $205,273,300

                                                                          = 0.4593*100

                                                                          = 45.93.
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

The current stock price for a company is $37 per share, andthere are 3 million shares outstanding. This firm also has 110,000bonds outstanding, which pay interest semiannually. If these bondshave a coupon interest rate of 7%, 30 years to maturity, a facevalue of $1,000, and an annual yield to maturity of 8.3%, what isthe percent market value of debt for this firm? (Answer to thenearest hundredth of a percent, but do not use a percent sign).

Other questions asked by students

Q

The use of amino acids to make proteins a is an example of catabolism Ob...

Biology
Q

tan 0 1 tan 0 1 Consider the situation as shown T maximum value of...

Physics
Q

An object of 5 cm in size is placed at a distance of 20 cm...

Physics
Q

Convert 4 32 to 432 10 3 4 32 10 6 4 32 10 3...

Basic Math
Q

Suppose you toss a coin and will win 1 if it comes up heads If...

Basic Math
Q

31 Guinea pig survival times Here are the survival times in days of 72 guinea...

Statistics
Q

The chief financial officer (CFO) alerted you that a competitor has expressed an interest in...

Accounting
Q

Finch Manufacturing Corporation was started with the issuance of common stock for $70,000. It purchased...

Accounting
Q

Brunch Ltd has a building which cost $475,000 and has an accumulated depreciation balance of...

Accounting
Q

Many times during the course of an audit I would be looking for the "Red...

Accounting
Q

7.59% Question 5 20 pts A stock had returns of 8%, -2%, 4%, and 16%...

Finance
Q

KIC Inc. plans to issue $5 million of bonds with a coupon rate of 12...

Finance