Problem 2-18 Functions of Financial Markets (L03) Consider the table shown below to answer the question posed in part a. Parts b and c are independent of the given table. Callaway Golf (ELY) Alaska Air Group (ALK) Yum! Brands (YUM) Caterpillar Tractor (CAT) Microsoft (MSFT) Number of Share (millions) 94.2 . 123.7 301.7 * 543.3 7,560 Stock Price 27.30 50.70 103.07 186.66 242.12 Market Capitalization (5 millions) $2,572 $ 6,272 $ 31,096 $ 101,412 $1,830,427 a. The price of Yum! Brands stock has risen to $160. What is the market value of the firm's equity if the number of outstanding shares does not change? Note: Enter your answer in dollars not in billions of dollars. b. The rating agency has revised Catalytic Concepts' bond rating to AAA (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? Note: Enter your answer as a percent rounded to 1 decimal place. c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed price, and the other agrees to sell. Which one sells?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
100%
Problem 2-18 Functions of Financial Markets (LO3)
Consider the table shown below to answer the question posed in part a. Parts b and c are independent of the given table.
Market
capitalization
(5 millions)
Callaway Golf (ELY)
Alaska Air Group (ALK)
Yum! Brands (YUM)
Caterpillar Tractor (CAT)
Microsoft (MSFT)
Number of
M
Share
(millions)
94.2
123.7 M
301.7 X
543.3 X
7,560
a. Market value.
b. Interest rate
c. Which one sells?
Answer is complete but not entirely correct.
1,988,955
A farmer
$ 2,572
Stock Price
27.30
50.70
103.07
$ 31,096
186.66 - $ 101,412
242.12
$1,830,427
$ 6,272
a. The price of Yum! Brands stock has risen to $160. What is the market value of the firm's equity if the number of outstanding
shares does not change?
Note: Enter your answer in dollars not in billions of dollars.
b. The rating agency has revised Catalytic Concepts' bond rating to AAA (use Table 2.2). What interest rate, approximately, would
the company now need to pay on its bonds?
Note: Enter your answer as a percent rounded to 1 decimal place.
c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed
price, and the other agrees to sell. Which one sells?
1.7 %
-
-
-
Transcribed Image Text:Problem 2-18 Functions of Financial Markets (LO3) Consider the table shown below to answer the question posed in part a. Parts b and c are independent of the given table. Market capitalization (5 millions) Callaway Golf (ELY) Alaska Air Group (ALK) Yum! Brands (YUM) Caterpillar Tractor (CAT) Microsoft (MSFT) Number of M Share (millions) 94.2 123.7 M 301.7 X 543.3 X 7,560 a. Market value. b. Interest rate c. Which one sells? Answer is complete but not entirely correct. 1,988,955 A farmer $ 2,572 Stock Price 27.30 50.70 103.07 $ 31,096 186.66 - $ 101,412 242.12 $1,830,427 $ 6,272 a. The price of Yum! Brands stock has risen to $160. What is the market value of the firm's equity if the number of outstanding shares does not change? Note: Enter your answer in dollars not in billions of dollars. b. The rating agency has revised Catalytic Concepts' bond rating to AAA (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? Note: Enter your answer as a percent rounded to 1 decimal place. c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed price, and the other agrees to sell. Which one sells? 1.7 % - - -
Credit Rating
AAA
AA
A
BBB
BB
B
Interest Rate
1.68
1.6
1.7
2.4
4.2
5.6
Source: ICE Bank of America Merrill Lynch indices.
Transcribed Image Text:Credit Rating AAA AA A BBB BB B Interest Rate 1.68 1.6 1.7 2.4 4.2 5.6 Source: ICE Bank of America Merrill Lynch indices.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Financial Statement Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education