Check my work mode: This 3 Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 14 percent. This return was in line with the required returns by bondholders at that point as described below: 18 points Real rate of return Inflation premium Risk premio Total return 50 4 5 141 Assume that five years later the inflation premium is only 3 percent and is appropriately reflected in the required return for yield to maturity of the bonds. The bonds have 20 years remaining until maturity Compute the new price of the bond. Use Agenx B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual) Answer is complete but not entirely correct. New price of the bond 1.418.54 6 1.8 points You are called in as a financial analyst to appraise the bonds of Olsen's Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 13 percent, which is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 10 years to maturity. Use Appendix Band Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the price of the bonds based on semiannual analysis. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) 01002 Answer is complete but not entirely correct. Bond price 15 446.59 b. With 5 years to maturity. If yield to maturity goes down substantially to 8 percent, what will be the new price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Answer is complete but not entirely correct. New bond price 570.05 my 15 Keyspan corp. is planning to issue debt that will mature in 2033. In many respects, the issue is similar to the currently outstanding debt of the corporation. Use Table 113 a. Calculate the yield to maturity on similarly outstanding debt for the firm in terms of maturity. (Input your answer as a percent rounded to 2 decimal places.) 18 points 03:09:29 Answer is complete but not entirely correct. Yield 4.73% Assume that because the new debt will be issued at par, the required yield to maturity will be 0.12 percent higher than the value determined in part a. b. What is the new yield to maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Yield 4.85 c. If the firm is in a 25 percent tax bracket, what is the aftertax cost of debt for the yield determined in part b? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Ahertax cost of debt 3.64 Check my work mode: This shows w 21 A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision, Mr.Jeter, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 9.6 percent coupon rate and another bond with an 72 percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 10.5 percent. The common stock has a price of $50 and an expected dividend (D) of $170 per share. The historical growth pattern (gt for dividends is as follows: 18 points 01.09 $ 1.25 1.30 The preferred stock is selling at $70 per share and pays a dividend of $6.60 per share. The corporate tax rate is 30 percent. The flotation cost is 20 percent of the selling price for preferred stock. The optimum capital structure for the firm is 25 percent debt, 10 percent preferred stock, and 65 percent common equity in the form of retained earnings. a. Compute the average historical growth rate. (Do not round intermediate calculations. Round your answer to the nearest whole percent and use this value as 9. Input your answer as a whole percent.) Answer is complete but not entirely correct. Growth rate 6.00 b. Compute the cost of capital for the individual components in the capital structure. (Use the rounded whole percent computed in part a forg. Do not round any other intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Debe Weighted Cost 7.35ls 9.62 9.40 Preferred to c. Calculate the weighted cost of each source of capital and the weighted average cost of capital (Do not round Intermediate calculations. Input your answers as a percent rounded to 2 decimal places) Answer is complete but not entirely correct. Weed Cool 184 OS 6.11 Pred od Common 8.91 24 18 Don The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan's current capital structure calls for 45 percent debt 15 percent preferred stock, and 40 percent common equity Initially, common equity will be in the form of retained earnings (K) and then new common stock (K). The costs of the various sources of financing are as follows: debt (after-tax). 42 percent preferred stock, 6 percent, retained earnings, 14 percent; and new common stock, 15.2 percent a. What is the initial weighted average cost of capital include debt, preferred stock, and common equity in the form of retained earnings, K) (Do not round Intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) & usus Answer is not complete. Weighted Cost 8.86 ON Preferred stock Common Weighted average cost of capital 8.86 % b. If the firm has $26 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of dollars (eg. $10 million should be entered as "10") Answer is complete but not entirely correct. Capital dure size milion c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 40 percent of the capital structure, but will be in the form of new common stock, K. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. 9.46 d. The 42 percent cost of debt referred to earlier applies only to the first $45 milion of debt. After that, the cost of debt will be 65 percent. At what we capital structure will there be a change in the cost of debt? (Enter your answer in milions of dollars leg. 10 milion should be entered as 10 Answer is complete but not entirely correct. What will the marginal cost of capital by her that consider the facts in both parts and Dentro Intermediate calculations. Input your answer as a percentruded to decimal places)