uestion description
1)Airbutus Co. wants to issue new 16-year bonds for some much-needed expansion projects. The company currently has 10 percent coupon bonds on the market that sell for $1,075, make semiannual payments, and mature in 16 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?
2)
| The most recent financial statements for Burnaby Co. are shown here: |
| Statement of Comprehensive Income | Statement of Financial Position | |||||||
| Sales | $ | 16,400 | Current assets | $ | 11,200 | Debt | $ | 15,700 |
| Costs | 12,430 | Fixed assets | 27,000 | Equity | 22,500 | |||
| Taxable income | $ | 3,970 | Total | $ | 38,200 | Total | $ | 38,200 |
| Taxes (40%) | 1,588 | |||||||
| Net income | $ | 2,382 | ||||||
| Assets and costs are proportional to sales. Debt and equity are not. Burnaby Co. maintains a constant 30 percent dividend payout ratio. No external financing is possible. |
| What is the internal growth rate? 3) Malahat Inc. has 6.7 percent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 6.35 percent, what is the current bond price? Assume the par value of a bond is $1,000. |
