Today, Company "A" purchases 100% of Company B Common Stock and assumes all of the outstanding...
Today, Company "A" purchases 100% of Company B Common Stock and assumes all of the outstanding Company B Liabilities. Immediately Before the acquisition, Company B had reported the following Balance Sheet Totals and supplemental information: Physical (non-financial)Liabilities = $42,680,000 Face Value of Outstanding Bond Liabilities =$640,000,000 Time to Maturity for Outstanding Bonds = 18 years Annual Coupon Rate for Bonds with annual coupon payments = 5% Cost of Debt for Company B = 4% Cost of Debt for Company A = 6.5% Required: Compute the Value of the Bonds that would be shown on the Balance Sheet of Company B immediately before the acquisition.
Homework Answers
Value of bonds is equal to the present value of all future coupon payments and the principal amount
= 640,000,000*5%*PVAF(4%, 18 years) + 640,000,000*PVF(4%, 18 years)
= 32,000,000*12.6593 +640,000,000*0.4936
= $721,001,600
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