Lionel Company has 1,500 units of bonds outstanding. Each unit has $100 face value, 6% coupon rate with semi-annual payments, and 15 years to maturity. The risk-free rate is 3%, default risk premium for its bond is 2%, maturity risk premium for 15-year maturity is 1.5 % & has a tax rate of 20%. 1. (a) Determine the required rate of return for its bonds, (b) the amount of tax savings, and (c) the after tax cost of debt. 2. Determine (a) the value of coupon payments, (b) the value of principal payment, and (c) total value of per unit of bond. (d) Determine total market value of all bonds outstanding.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Lionel Company has 1,500 units of bonds outstanding. Each unit has $100 face value, 6% coupon rate with semi-annual payments, and 15 years to maturity. The risk-free rate is 3%, default risk premium for its bond is 2%, maturity risk premium for 15-year maturity is 1.5 % & has a tax rate of 20%.
1. (a) Determine the required
2. Determine (a) the value of coupon payments, (b) the value of principal payment, and (c) total value of per unit of bond. (d) Determine total market
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