FIN 010 Lecture Notes - Lecture 10: Santa Barbara City College, Asset, Australian Dollar

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cerisehedgehog991

9 Jan 2021

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Issuer has contractual obligation to make promised payments. Face (or par) value is the dollar amount paid at maturity. Coupon rate is the interest rate promised by the issuer, expressed as a percentage of face value. Coupon payment is the periodic (usually semi-annual) payment made to debt holders. Coupon payment = coupon rate x face value. Debenture: debt security that is secured by a charge over land or other tangible asset of the borrower. The term to maturity is fixed and range from 1 year to 5 years. The coupon rate is fixed at the time the debentures are issued. Some debentures are traded on the australian stock exchange (asx) while some are unlisted debentures. Long-term debt security issued by non-government entities. Coupon payments may be made quarterly or semi-annually. Corporate bonds can be listed or non-listed. Off-shore bonds: bonds issued by australian companies in market outside australia to foreign investors.

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The (-Select- A. discount B. premium C. par) value of a bond is its stated face value or maturity value, and its coupon interest rate is the stated annual interest rate on the bond. The maturity date is the date on which the par value must be repaid. A (-Select- A. call B. redemption C. sinking) provision gives the issuer the right to redeem the bonds under specified terms prior to their normal maturity date, although not all bonds have this provision. Some bonds have (-Select- A. redemption fund B. sinking fund C. call fund) provisions which require the issuer to systematically retire a portion of the bond issue each year. Because sinking fund provisions facilitate their orderly retirement, bonds with these provisions are regarded as being (-Select-A. riskier B. safer C. equivalent) so they will have (-Select- A. lower B. equivalent C. higher) coupon rates than similar bonds without these provisions.

Bonds can be (-Select- A. floating B. zero C. fixed) -rate bonds with a constant coupon rate over the life of the bond, or they can be (-Select- A. floating B. zero C. fixed) -rate bonds with a coupon rate that varies over time depending on the level of interest rates. (-Select- A. Annual coupon B. Zero coupon C. Fixed coupon) bonds pay no annual interest but are sold at a (-Select- A. premium above B. price at C. discount below) par, thus compensating investors in the form of capital appreciation. An original issue discount (OID) bond is any bond originally offered at a price (-Select- A. above its B. below its C. equal to) par value.

(-Select- A. Convertible B. Perpetual C. Putable) bonds are exchangeable at the option of the holder for the issuing firm's common stock. Bonds can be issued with warrants giving the holder the option to purchase the firm's stock for a stated price, thereby providing a capital gain if the stock's price rises. (-Select- A. Income B. Convertible C. Putable) bonds contain a provision that allows holders to sell them back to the company prior to maturity at a prearranged price. (-Select- A. Income B. Default C. Preferred) bonds pay interest only if the firm has earnings, while an indexed (purchasing power) bond bases interest payments on an inflation index to protect the holder from inflation.

Mortgage bonds are backed by (-Select- A. current assets B. fixed assets C. marketable securities) . First mortgage bonds are senior in priority to claims of second mortgage bonds. Debentures are long-term bonds that are not secured by a mortgage. Subordinated debentures are bonds having claims on assets only after senior debt has been paid in full in the event of liquidation. (-Select- A. Secured-debenture B. Investment-grade) bonds are rated triple B or higher, and many banks and other institutional investors are legally limited to only holding these bonds. In contrast, junk bonds are high-risk, high-yield bonds.

raspberryskunk708

Acort Industries has 12 million shares outstanding and a current share price of $36 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 7%, and has a $101million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 4.2%.Acort has EBIT of $103million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $20million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 35%,and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on).

a. Based on this information, estimate Acort's WACC.

b. What is Acort's equity cost of capital?

ambergoldfish728

Acort Industries has 15 million shares outstanding and a current share price of $50 per share. It also hasâ long-term debt outstanding. This debt is riskâ free, is four years away fromâ maturity, has an annual coupon rate of 6%â, and has a $90 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 3.6%. Acort has EBIT of $112 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $10 million perâ year, while no changes to net working capital are expected in the future. The corporate tax rate is 35%â, and Acort is expected to keep itsâ debt-equity ratio constant in the futureâ (by either issuing additional new debt or buying back some debt as time goesâ on).

a. Based on thisâ information, estimateâ Acort's WACC.

b. What isâ Acort's equity cost ofâ capital?

FIN 010 Lecture Notes - Lecture 10: Santa Barbara City College, Asset, Australian Dollar

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