ADMS 3595 Lecture Notes - Effective Interest Rate, Unsecured Debt, High-Yield Debt

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sangriabee57

26 May 2013

School

York University

Department

Administrative Studies

Course

ADMS 3595

Professor

all

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Document Summary

Long-term debt: obligations not payable within one year, or one business operating cycle - whichever is longer. Examples include: bonds payable, long-term notes, mortgages, pension liabilities, lease liabilities. Often with restrictive covenants (terms) are attached. Yield, effective and market rate are the same. Stated, coupon and nominal rate are the same. Notes payable: : similar in nature to bonds as it requires repayment of principal at a future. Registered and bearer (coupon) bonds: are freely transferable by current owner. Secured and unsecured debt: secured by collateral (real estate, stocks). Collateral trust bonds or notes are secured by shares and bonds of other corporations. Debt instruments that are not backed by collateral are unsecured e. g. , debenture bonds. Junk bonds are unsecured and also very risky and pay a high interest rate. Callable bonds: give issuer right to call and retire debt prior to maturity. The issuer may want to money want if the interest rate is dropping.

Related Questions

Market Value Capital Structure

Suppose the Schoof Company has this book value balance sheet:

Current assets	$30,000,000	Current liabilities	$20,000,000
Fixed assets	70,000,000	Notes payable	$10,000,000
		Long-term debt	30,000,000
		Common stock (1 million shares)	1,000,000
		Retained earnings	39,000,000
Total assets	$100,000,000	Total liabilities and equity	$100,000,000

The notes payable are to banks, and the interest rate on this debt is 7%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company's permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 8%, and a 15-year maturity. The going rate of interest on new long-term debt, rd, is 11%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $70 per share. Calculate the firm's market value capital structure. Do not round intermediate calculations. Round your answers to two decimal places.

Short-term debt	$	%
Long-term debt
Common equity
Total capital	$	%

taupeswan176

Market Value Capital Structure

Suppose the Schoof Company has this book value balance sheet:

Current assets	$30,000,000	Current liabilities	$20,000,000
Fixed assets	70,000,000	Notes payable	$10,000,000
		Long-term debt	30,000,000
		Common stock (1 million shares)	1,000,000
		Retained earnings	39,000,000
Total assets	$100,000,000	Total liabilities and equity	$100,000,000

The notes payable are to banks, and the interest rate on this debt is 9%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company's permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 6%, and a 20-year maturity. The going rate of interest on new long-term debt, rd, is 11%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $68 per share. Calculate the firm's market value capital structure. Do not round intermediate calculations. Round your answers to two decimal places.

Short-term Debt $_____________ _______________%

Long-term Debt $_____________ _______________%

Common Equity $_____________ _______________%

Total Capital $_____________ _______________%

tanferret348

Suppose the Schoof Company has this book value balance sheet:

Current assets	$30,000,000	Current liabilities	$20,000,000
Fixed assets	70,000,000	Notes payable	$10,000,000
		Long-term debt	30,000,000
		Common stock (1 million shares)	1,000,000
		Retained earnings	39,000,000
Total assets	$100,000,000	Total liabilities and equity	$100,000,000

The notes payable are to banks, and the interest rate on this debt is 9%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company's permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 8%, and a 15-year maturity. The going rate of interest on new long-term debt, r_d, is 11%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $54 per share. Calculate the firm's market value capital structure. Do not round intermediate calculations. Round your answers to two decimal places.

Short-term debt	$	%
Long-term debt
Common equity
Total capital	$	%

jadedeer814

ADMS 3595 Lecture Notes - Effective Interest Rate, Unsecured Debt, High-Yield Debt

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