Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 12, Problem 1RQ
Summary Introduction
To discuss: The amount of increase of Company A’s debt to total asset ratio by issuing new bond.
Expert Solution & Answer
Explanation of Solution
The common indicator of the use of borrowed funds and financial leverage of a firm is debt to total asset ratio.
In the year 2011, company A had $65 billion in borrowed funds relative to $270 billion in assets. This generates debt to total assets ratio of 24%. The additional borrowing of $3 billion in the year 2012 will increase the total borrowings to $68 billion.
It is to be noticed that company A did not paid any debt in the year 2011. Then the total asset will increase to $273 billion and the debt to total asset ratio of the firm will rise to 24.9% for an increase of marginally less than 1%.
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Students have asked these similar questions
In March 2016, NuVasive, a medical device company, raised $634 million of 2.25% convertible senior notes due 2021. The company’s stock price was $45.15 at the time.
The conversion rate is 16.7158 shares per $1000 bond. Calculate the conversion price in dollars and the premium as a percentage. Then discuss reasons that explain the size of the premium. Also explain why NuVasive decided to issue convertible bonds instead of regular bonds.
The following table lists several corporate bonds issued during the second quarter of 2015.
Company
AT&T
Bank of America
General Electric
Goldman Sachs
Verizon
Wells Fargo
Time toMaturity(years)
10
10
2
3
8
7
AnnualRate (%)
3.40
4.00
5.25
6.15
5.15
3.50
If you spent $60,000 on Bank of America bonds, how much interest would you earn every 6 months? HINT [See Example 3.]
$
How much interest would you earn over the life of the bonds?
The following table lists several corporate
bonds issued during the second quarter of
2015. Company AT&T Bank of America
General Electric Goldman Sachs Verizon Wells
Fargo Time to Maturity (years) 10 10 2 3 87
Annual Rate (%) 3.40 4.00 5.25 6.15 5.15 3.50
If you spent $20,000 on General Electric
bonds, how much interest would you earn
every 6 months? HINT [See Example 3.] $
2100 Incorrect: Your answer is incorrect. How
much interest would you earn over the life of
the bonds? $ 25
Chapter 12 Solutions
Foundations Of Finance
Ch. 12 - Prob. 1RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 1SPCh. 12 - Prob. 2SPCh. 12 - Prob. 3SPCh. 12 - Prob. 4SPCh. 12 - Prob. 5SPCh. 12 - (Capital structure theory) Match each of the...
Ch. 12 - (Capital structure theory) Which of the following...Ch. 12 - Prob. 8SPCh. 12 - Prob. 9SPCh. 12 - (Assessing leverage use) Financial data for three...Ch. 12 - Prob. 1.1MCCh. 12 - Prob. 1.2MCCh. 12 - Prob. 1.3MCCh. 12 - Prob. 1.4MCCh. 12 - Prob. 2.1MCCh. 12 - Prob. 2.2MCCh. 12 - Prob. 2.3MCCh. 12 - Prob. 3.1MCCh. 12 - Prob. 3.2MCCh. 12 - Prob. 3.3MC
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