The value of equity in a firm is $6 million and its annual volatility is 40%. All the firm's debt is a five-year, zero - coupon bond with a face value of $10 million. The risk-free rate is 5%. A ) Use Excel to calculate the value of the firm's assets and its volatility. B) Find the expected loss on debt from the firm's default in 5 years, and the recovery rate in this case. C) Calculate the distance - to - default and interpret it.
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- Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 87 basis points (0.87%). Your firm's five-year debt has an annual coupon rate of 5.9%. You see that new five-year Treasury notes are being issued at par with an annual coupon rate of 1.7%. What should be the price of your outstanding five-year bonds? Assume $1,000 face value Assuming a $1,000 face value, the price of the bond is $ (Round to the nearest cent)A firm raises capital by selling $25,000 worth of debt with flotation costs equal to 1% of its par value. If the debt matures in 5 years and has an annual coupon interest rate of 7%, what is the bond's YTM?A company has its debt structured as a single zero-coupon bond that matures in 5 years. The face value of the debt outstanding is $40 million and the current value of the company's total assets is $36 million. The standard deviation of the return of its assets is 30 percent per year, and the risk-free rate is estimated to be about 5 percent per year, compounded continuously. Suppose this company has a new project opportunity available. This project has an estimated NPV of $3,000,000. If the company undertakes the project, what will be the new market value of equity? Assume volatility is unchanged. Assuming the company decided to undertake the new project and does not borrow any additional funds, what is the new continuously compounded cost of debt? Explain in detail the impact this project has on the cost of debt.
- In order to calculate a WACC, you first must know the firm's cost of debt and equity. For debt, a firm can issue new bonds with a 4.05% coupon rate and a maturity of 25 years. Interest is paid semi-annually. The market price of the new issue would be $1,146.01 less a 4% of par flotation cost. The face value of the bond, payable at maturity, is $1,000. What is the before-tax cost of debt for this firm (please respond with to the basis point, but without the % sign - meaning if you calculate 3.7569456%, then enter 3.76.)?A) Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 86 basis points (0.86%). Your firm's five-year debt has an annual coupon rate of 5.8%. You see that new five-year Treasury notes are being issued at par with an annual coupon rate of 2.2%. What should be the price of your outstanding five-year bonds? Assume $1,000 face value. Assuming a $1,000 face value, the price of the bond is $________. (Round to the nearest cent.)Last year a firm issued 20-year, 8% annual coupon bonds at a par value of $1,000. Suppose that one year after issue, the going market interest rate is 10% (rather than 6%). What would the price have been? Explain your reasoning SHOW ALL WORK AND USE FINANCIAL CALCULATOR
- Your firm has a credit rating of A. You notice that the credit spread for five year maturity A debt is 95 basis points left parenthesis 0.95% right parenthesis. Your firm's five year debt has a coupon rate of 6.8% with semi - annual coupons. You see that new five year Treasury notes are being issued at par with a coupon rate of 2.6 %. What should be the price of your outstanding five year bonds per $100 face value.A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 3.9% per year, and the real risk-free rate (r*) is 2.15%. The average inflation premium is 1.35%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %← Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 83 basis points (0.83%). Your firm's five-year debt has a coupon rate of 6.3% with semi-annual coupons. You see that new five-year Treasury notes are being issued at par with a coupon rate of 1.9%. What should be the price of your outstanding five-year bonds per $100 face value. The price of the bond is $. (Round to the nearest cent.)
- Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 85 basis points (0.85%). Your firm's five-year debt has a coupon rate of 6.0% with semi-annual coupons. You see that new five-year Treasury notes are being issued at par with a coupon rate of 2.0%. What should be the price of your outstanding five-year bonds per $100 face value. The price of the bond is $ (Round to the nearest cent.)A firm raises capital by selling $18,000 worth of debt with flotation costs equal to 3% of its par value. If the debt matures in 10 years and has an annual coupon interest rate of 10%, what is the bond's YTM? (Round to two decimal places.)Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 87 basis points (0.87%). Your firm's five-year debt has a coupon rate of 5.7% with semi-annual coupons. You see that new five-year Treasury notes are being issued at par with a coupon rate of 2.4%. What should be the price of your outstanding five-year bonds per $100 face value. The price of the bond is?