Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose there is a corporate bond. Its face value is $2000. And the maturity is 4 years. Its coupon is $10 issued at the end

Suppose there is a corporate bond. Its face value is $2000. And the maturity is 4 years. Its coupon is $10 issued at the end of each year. Its price is $1900 right now. The interest rates for bonds and stocks are 2% and 3%, respectively. The market price of stock of this company is $25 right now. And the shares outstanding is 25,000 shares. And the tax rate is 20%. The ratio of debt to equity is 0.2.

a. What is the WACC for this firm?

b. What are the NPV and the YTM of the bond?

c. Suppose the firm is going to repurchase some stocks now. It repurchased 5000 shares from the market at the current price. What is the stock price after the repurchase?

d. Suppose the firm is going to split its stock. It is a 2-to-1 split. It requires commission of $ 2000. What is the stock price afterwards?

e. Suppose the firm issued cash dividend of $2 per share. What is the price afterwards?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

New Issues In Financial Institutions Management

Authors: F Fiordelisi, P Molyneux, D Previati

2010th Edition

0230278108, 978-0230278103

More Books

Students also viewed these Finance questions

Question

Evaluate the importance of diversity in the workforce.

Answered: 1 week ago

Question

Identify the legal standards of the recruitment process.

Answered: 1 week ago