80*7.1607+1000*.3555 = $928 • 5-2 Yield to Maturity for Annual payments Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? 100+1000-850/12/1000+850/2 = 112.5/925 = .1216 or 12.16% • 5-6 Maturity Risk Premium The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years.
Answer AR= 20x20000=400,000 3-2 Debt Ratio Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Answer Equity multiplier Asset /equity = 2.5/1 A=L+E 2.5=1.5=+1 Debt/asset = 1.5/2.5 = .6 3-3 Market/Book Ratio Winston Washers’s stock price is $75 per share. Winston has $10 billion in total as- sets.
$20,000*20 days outstanding= AR $400,000 3-2 Debt Ratio Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Equity Multiplier= 2.5 Asset/Equity = 2.5/1 1+1.5= 2.5 Debt/Asset= 1.5/2.5= .6 3-3 Market/Book Ratio Winston Washer’s stock price is $75 per share. Winston has $10 billion in total assets.
What would be the second year future value? (LG4-3) FV = 750 × (1 + 0.10) (1 + 0.12) 750 × 1.10 × 1.12 Answer: 924.00 4-11 Present Value What is the present value of a $1,500 payment made in six years when the discount rate is 8 percent? (LG4-4) PV = 1500/(1+0.08)6 1500/1.586874323 Answer: 945.25 4-13 Present Value with Different Discount Rates Compute the present value of $1,000 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year. (LG4-4) PV = 1000 / ((1 + 0.06) (1 +0.07) (1 + 0.08)) 1000/ (1.06 × 1.07 × 1.08) 1000/1.224936 Answer: 816.37 4-16 Rule of 72 Approximately how many years are needed to double a $500 investment when interest rates are 10 percent per year? (LG4-6) N=72 / 10 Answer: 7.2 4-31 Solving for Time How many years (and months) will it take $2 million to grow to $5 million with an annual interest rate of 7 percent?
$25 a year for 3 years compounded annually at 2 percent rate (i)= 2% number of periods (n) = 3 present value (PV) = $25 type (0 at end of period) = 0 Future value (FV) = $76.51 5-6A (Present value of an annuity) What is the present value of the following annuities? a. $2,500 a year for 10 years discounted back to the present at 7 percent rate (i)= 7% number of periods (n) = 10 Future value (FV) = $2,500 type (0 at end of period) = 0 Present value (PV) = $17,558.95 b. $70 a year for 3 years discounted back to the present at 3 percent rate (i)= 3% number of periods (n) = 3 Future value (FV) = $70 type (0 at end of period) = 0 Present value (PV) = $198.00 c. $280 a year for 7 years discounted back to the present at 6 percent rate (i)= 6% number of periods (n) = 7 Future value (FV) = $280 type (0 at end of period) = 0 Present value (PV) = $1,563.07 d. $500 a year for 10 years discounted back to the present at 10 percent rate (i)= 10% number of periods (n) = 10 Future value (FV) = $500 type (0 at end of period) = 0 Present value (PV) =
cost of equity =I used the 20 year at 5.74%+Geometric mean=5.9%x most recent beta .69=9.81% Cost of Debt I used Yield to maturity to find cost of debt From Exhibit 4 PV= 95.60 N=40 (20years x 2) since its paid semiannually Pmt=-3.375 (6.75/2) FV=-100 Comp I = 3.58% (semiannual) 7.16% (annual) After tax cost of debt = 7.16%(1-38%) = 4.44% E = market value of the firm's equity To find Market value of Equity you multiply share price by amount of shares $42.09x273.3= 11503. D = market value of the firm's debt I valued book value of debt at 1,291 Then divide 11503/(11503+1291)=89.9 so the weight for debt is 10.1 percent When I calculated WACC 4.44%x.101+9.81%x.899= 9.27% Cohen made a few mistakes when she calculated her WACC. First, she used historical data in
ACCT 3001 Job Order Costing The December 31, 2009, balance sheet of Danko Corp. is presented below: Danko Corp. Balance sheet December 31, 2009 Cash $12,000 Accounts Payable $5,000 Building & Equip. 20,000 Common Stock 10,000 Accum. Deprec. (4,000) Retained Earnings 13,000 $28,000 $28,000 During 2010, the following events occurred: 1. Danko purchased, on account, raw materials for $1,600, and used $1,300 in production.
If it is compounded continuosly? Explain the results. Annual: PV = -2000, I/YR = 6; N = 10; solve for FV = $3581.70 Quarterly: I/YR = 6/4 = 1.5; N = 10*4 = 40; solve for FV = $3628.04 Continuously: -2000*(e**.06**10) = $3,644.24 FV increases with the number of compounding periods Question 1b What will be the total accumulated amount at the end of 10 years if in addition to the initial $2,000, you also deposit $4,000 in year 4 and $8,000 in year 8? Assume an annual 6% interest rate for all ten years. First cash flow: FV = 3581.70 (already done) Second cash flow: PV = -4000, N = 6, I/YR = 6, solve for FV = 5674.08 Third cash flow: PV = -8000, N=2, I/YR = 6; solve for FV = 8988.80 ANSWER: 3581.70+5674.08+8988.80 = $18,244.58 Question 1c Using the information from Question 1b, what will be the total accumulated value at the end of 10 years, if the interest rate is expected to be 6% for only the first three years, followed by 8% for the next five years, and 10% thereafter?
$4.0 million e. If operating capital in the previous year was $24 million, what was the company’s free cash flow (FCF) for the year? $2.0 million f. What was the company’s economic value added? $500,000 2. As an institutional investor paying a marginal tax rate of 46%, your after-tax dividend yield on preferred stock with a 16% before-tax dividend yield would be: 14.9% 3. A 7% coupon bond issued by the state of New York sells for $1,000 and thus provides a 7% yield to maturity.
Estimate the two- and three-year LIBOR zero rates. 2. A financial institution has agreed to pay 10% per annum (with quarterly compounding) and to receive 3-month LIBOR in return on a notional principal of $100 million with payments being exchanged every 3 months. The Swap has a remaining life of 5 months. The 2-month and 5-month zero rates are 9.9% and 10.2% with continuous compounding, respectively.