ECN372 Corporate Finance 2‚ 2012/2013 Problem Set 5: Solutions 1. a) The face value of debt is given by: 0.5 × F + 0.5 × 40 = 60 ⇒ F = 80 The value of the firm is: V = 0.5 × 150 + 0.5 × 40 = 95 The value of equity is: E = 95 − 60 = 35 b) The value of debt: D = 0.5 × 50 + 0.5 × (20 − 10) = 30 The value of the firm is: V = 0.5 × 70 + 0.5 × (20 − 10) = 40 The value of equity is: E = 40 − 30 = 10 c) If the firms were to merge then: The value of debt: D = 0.5 × (80 + 50) + 0.5 × (40 + 70
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HOMEWORK ASSIGNMENT 1. Callaghan Motors’ bonds have 10 years remaining to maturity. Interest is paid annually‚ they have a $1‚000 par value‚ the coupon interest rate is 8%‚ and the yield to maturity is 9%. What is the bond’s current market price? PV factor of sum = (1+i)^-n = (1+9%)^-10 =1.09^-10 = 0.4224 PV factor of annuity = 1 - (1+i)^-n / i = 1 - (1+9%)^-10 / 9% = 1 - 0.4224 / 9% = 0.5775 / 9% = 6.417 = PV factor of Sum * Par Value + PV factor of annuity * coupon payment = 0.4224 * 1‚000
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leverage than Firm B. 12-3 If sales tend to fluctuate widely‚ then cash flows and the ability to service fixed charges also will vary. Consequently‚ there is a relatively large risk that the firm will be unable to meet its fixed charges. As a result‚ firms in unstable industries tend to use less debt than those whose sales are subject to only moderate fluctuations. 12-4 The tax benefits from debt increase linearly‚ which causes a continuous increase in the firm’s value and stock price. However
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XYZ Company Limited Date Valuation Report: DUMMY Executive Summary INDUSTRY: XX XYZ Company Limited (hereinafter referred to as “XYZ” or “the company”) is a XX manufacturing company and markets its products under the brand name XX in the XX region of India. Business valuation summary of XYZ Multiple used EV/tonne method Equity value Rs mn Value per share (Rs) Rs 5‚809 per tonne EV/EBITDA method 4.5x Discounted Cash Flow method NA Book value (FY10) NA Equity
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FINANCIAL AND ECONOMIC MANAGEMENT REGIONAL WORKSHOP ON MONEY MARKET DEVELOPMENT AND TECHNIQUES OF SECURITIES TRADING-LAGOS‚ NIGERIA MARCH 4-14 2008 THE BOND MARKET IN GHANA-CHALLENGES FOR ITS DEVELOPMENT A. Introduction A bond has been defined as a debt (loan) instrument which requires the issuer to repay the investor the amount borrowed with interest over a predetermined period of time. Bonds can be callable‚ redeemable‚ convertible‚ extendable or retractable. They may have warrants attached
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keeping many businesses afloat. The bond market is another environment where debts are issued and taken up by investors. As a capital market it is concerned with loans with long-term maturities (5-30 years) and companies use them to invest in new facilities etc. thus increasing growth opportunities. Bonds long-term maturity makes an active secondary market essential. Most bonds pay a rate of interest (usually semiannually) known as a coupon but zero-coupon bonds (which do not pay interest but‚ like
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Week 3 Time Value of Money and Valuing Bonds Chapter 6 55. Amortization with Equal Payments Prepare an amortization schedule for a five-year loan of $36‚000. The interest rate is 9 percent per year‚ and the loan calls for equal annual payments. How much interest is paid in the third year? Answer: $2‚108.52 56. Amortization with Equal Principal Payments Rework Problem 55 assuming that the loan agreement calls for a principal reduction of $7‚200 every year instead of equal annual payments. Answer:
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NASDAQ‚ my chosen stock is AAPL‚ which is the symbol for Apple Inc. “ Apple Inc. is an American multinational corporation headquartered in Cupertino‚ California‚ Apple designs‚ develops‚ and sells consumer electronics‚ software‚ online services‚ and personal computers. “(Apple.com) Apple’s most successful items have been the Mac computer‚ the iPod‚ and iPhone Apple was founded on April 1‚ 1976 by Steve Jobs‚ Steve Wozniak‚ and Ronald Wayne. Apple was incorporated as Apple‚ Inc. January 9‚ 2007
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River By Abha Sirohi Research Scholar‚ A.K.P. G. College‚ Hapur (Ghaziabad) .................................................................................................................................................................. Ruskin Bond attempts to analyze human psychology in his short stories; He deals with the elemental and impulsive life of man. He tells the stories objectively and beyond all these things his stories shows goodness of man’s heart and his faith in the Supreme power
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Graduate School of Business Administration University of Virginia UVA-F-1274 METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS This note addresses the methods used to value companies in a merger and acquisitions (M&A) setting. It provides a detailed description of the discounted cash flow (DCF) approach and reviews other methods of valuation‚ such as book value‚ liquidation value‚ replacement cost‚ market value‚ trading multiples of peer firms‚ and comparable transaction multiples. Discounted
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