below are some questions i need help with.All you need is in the questions below.

3. Convertible bonds, warrants, and other exotic bond features Which of the following are most likely to have higher yields? Convertible bonds Nonconvertible bonds Consider the case of an investor, Rajiv: Rajiv wants to include putable bonds in his investment portfolio. Rajiv is likely to put the bonds when: He has reinvestment options with higher yields He has reinvestment options with lower yields Rajiv also recently bought bonds with a clause stating that interest will be paid based on the inflation rate. When the inflation rate increases, the interest on the bonds will also increase. Rajiv has invested in indexed bonds 4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic value and its par value. These result from the relationship between a bond's coupon rate and a bondholder's required rate of return. Remember, a bond's coupon rate partially determines the interest-based return that a bond will pay, and a bondholder's required return reflects the return that a bondholder to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required return, the bond's par value, and its intrinsic value. These relationships can be summarized as follows: When the bond's coupon rate is equal to the bondholder's required return, the bond's intrinsic value will equal its par value, and the bond will trade at par. When the bond's coupon rate is greater to the bondholder's required return, the bond's intrinsic value will its par value, and the bond will trade at a premium. When the bond's coupon rate is less than the bondholder's required return, the bond's intrinsic value will be less than its par value, and the bond will trade . For example, assume Noah wants to earn a return of 10.50% and is offered the opportunity to purchase a $1,000 par value bond that pays a 9.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value: Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown Variable Name Variable Value A B $1,000 C Semiannual required return Based on this equation and the data, it is to expect that Noah's potential bond investment will exhibit an intrinsic value greater than $1,000. Now, consider the situation in which Noah wants to earn a return of 12%, but the bond being considered for purchase offers a coupon rate of 9%. Again, assume that the bond pays semiannual interest payments and has three years to maturity. If you round the bond's intrinsic value to the nearest whole dollar, then its intrinsic value of is its par value, so that the bond is trading at . Given your computation and conclusions, which of the following statements is true? When the coupon rate is less than Noah's required return, the bond should trade at a premium. A bond should trade at a par when the coupon rate is greater than Noah's required return. When the coupon rate is less than Noah's required return, the bond should trade at a discount. When the coupon rate is greater than Noah's required return, the bond's intrinsic value will be less than its par value. Bond yields A bond's yield to maturity (YTM) is the percentage return that it is expected to generate if the bond is assumed to be held until it matures. Calculating a bond's YTM requires you to make several assumptions. Which of the following is one of these assumptions? The bond has an early redemption feature. The bond will not be called. Consider the following case of Fuzzy Badger Transport Company: Fuzzy Badger Transport Company has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $980.35. However, Fuzzy Badger Transport Company may call the bonds in eight years at a call price of $1,060. What are the YTM and yield to call (YTC) on bonds? Fuzzy Badger Transport Company's bonds have a yield-to-maturity (YTM) of to-call (YTC) of 9.23% and a yield- 9.89% . If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Fuzzy Badger Transport Company's bonds? 13 years 5 years 18 years 8 years If Fuzzy Badger Transport Company issued new bonds today, what coupon rate must the bonds have to be issued at par? 6. Bond yields and prices over time A bond investor is analyzing the following annual coupon bonds. Each bond has 10 years until maturity and has the same risk. Their yield to maturity (YTM) is 9%. Interest rates are assumed to remain constant over the next 10 years. Annual Coupon Issuing Company Rate Irwin Enterprises 6% Smith Metalworks 9% Johnson Incorporated 12% Match each issuing company with the curve on the graph that indicates the path each bond's price, or value, is expected to follow. Issuing Company Curve Johnson Incorporated Irwin Enterprises Smith Metalworks Based on the preceding information, which of the following statements are true? Check all that apply. The expected capital gains yield for Johnson's bonds is negative. The bonds have the same expected total return. The expected capital gains yield for Johnson's bonds is greater than 12%. Irwin's bonds have the highest expected total return. Irwin just registered and issued its bonds, which will be sold in the bond market for the first time. Irwin's bonds would be referred to as . 7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $4,000,000 par value, semiannual coupon U.S. Treasury note with four years to maturity (YTM) has a coupon rate of 3%. The yield to maturity of the bond is 9.40%. Using this information and ignoring the other costs involved, the value of the Treasury note is . Based on your calculations and understanding of semiannual coupon bonds, complete the following statements: The T-note described is currently selling at a . Assuming that interest rates remain constant over the life of the note, its price should be expected to as the T-note approaches maturity . When valuing a semiannual coupon bond, the time period (N) in the present value formula is assumed to have a value of periods. 6) v' Pmblam 14-12 Breakeven and leverage Wlngler Communlcatlons Corporatlon (WCC) produces premlum stereo headphones that sell for $29.00 per set, and this year's sales are expected to be 460,000 unlts. Varlable production costs fur the expected sales under present production methods are estimated at $10,500,000, and fixed production (operatlng) costs at present are $1,550,000. WCC has $4,800,000 of debt outstandlng at an interest rate of 7olo. There are 240,000 shares of common stock outstandlng, and there ls no prefiered stock, The dlvldend payout ratlo ls 70alo, 6nd WCC ls ln the 40olo federal-plus-state tax bracket. The company is considering investlng $7,200,000 ln new equlpment. Sales would not lnrease, but variable costs per unlt would decllne by 209o. Also, flxed operating costs would lncrease from a. $1,560,000 to $1,800,000. WCC could ralse the required capltal by borrowlng $7,200,000 at 10% or by selling 240,000 additional shares of common stock at $30 per share. What would be WCC's EPS (1) under the old production process, (2) under the new process if it uses debt, and (3) under the new process if it uses common stock? Round your answers to the nearest cent. 1.$ 2.$ 3.$ b. a tr E At what unit sales level would WCC have the same EPS, assuming it undertakes the investment and finances it with debt or with stock? {Hint: V = variable cost per unit = $8,400,000/460,000, and EPS = [(PQ - VQ - F - IXl - T)]fltt. St EPSs1o.l = EPSoeut and solve for Q.] Round your answer to the nearest whole. fal I I Untts At what unit sales level would EPS = 0 under the three production/financing setups - that is, under the old plan, the new plan with debt financing, and the new plan with stock financing? (Hint: Note that Vora = $10,500,0001460,000, and use the hints for Part b, setting the EPS equation equalto zero.) Round your answers to the nearest whole. otdpran l*iurn, lA rnit, X I unit, New plan with stock financing I New plan with debt financing d. On the basis of the analysis in parts a through c, and given that operating leverage is lower under the new setup, which plan is the riskiest, which has the highest expected EPS, and which would you recommend? Assume here that there is a fairly high probability of sales falting as low as 250,000 units, and determine EPSoeot and EPSsp"l at that sales level to help assess the riskiness of the two financing planlRound your answerE to two deeimal places, =$ E-] EPSst"t,=* lxl EpsDeot The input in the box below will not be graded, but may be reviewed and considered by your instructor, \\ 'tr '$ Check My Work i : 14-2: Business and Financial Risk 14-3: Determining the Optimal Capital Structure Prublem 14-13 Financlng alternatives The Severn Company plans to raise a net amount of $270 million to finance new equlpment ln early 2014. Two alternaHves are being considered: Common stock may be sold to net $60 per share, or bonds ylelding 11?o may be issued. The balance sheet and lncome statement of the Severn Company prior to flnanclng are as follows: The Severn Gompany: Balance Sheet as of December 31, 2(,L4 (Millions of Dollarc) Current assets $ 900.00 Notes payable $ 2ss.0o 450.00 Long-term debt (10o/o) Net fixed 695.00 assets Total assets -t* par earnings Common stock, $3 Retained 60.00 340.00 Totat liabilities and $1,350.00 The Scvern Companyr Incomc Statement for Ycar Endcd Deccmber 31, 2014 (irtllllonr of Dollare) Sales $2,475.00 2,227.50 Operating costs Earnings before interest and taxes $247.s0 (10o/o) Interest on short-term debt Interest on long-term debt 15.00 _-6?s0, Earnings before taxes $153.00 65.20 Federal -plus-state taxes (40olo) __$zq Net income The probability distribution for annual sales is as follows: ProbabiliW 0.30 0.40 0.30 Annual Sales (Millions of Dollarc) $2,250 2,7OO 3,150 Assuming that EBIT equals 10% of sates, calculate earnings per share (EPS) under the debt financing and the stock financing alternatives at each posslble level of sales. Round your answErs to two decimal places. Wrlte out your answer completely, For example, 0.00013 mllllon should be entered as 130. ANNUAL SALES EPS under EPS under }IILLIONS OF DOLIARS) the debt the stock $2,250 $ 2,7O0 $ 3,150 $ tr tr $ $ $ tr tr Calculate expected EPS under both debt and stock flnancing alternatlves. Round your answers to two decimal places. Write out your answer completely. For example, 0.00013 mllllon should be entered as ,t F* .i ir' it f --.."/I {.-*- i,! 130" Under the debt financing expected EPS is $ E- )