Question

Texas Inc.'s bonds currently sell for $1,100 and have a par value of $1,000. They pay a $95 annual coupon and have a 15-year maturity, but they can be called in 6 years at $1,150. What is their yield to call (YTC)?

	1.	6.2%
	2.	7.2%
	3.	8.2%
	4.	9.2%
	5.	10.2%

Question 7

1. Sun Trust Securities is trying to evaluate Company A’s target stock price per share. Free cash flow (FCF) estimates for the next 3 years are -$2, $15, and $20 million, after which the FCF is expected to grow at 5%. The overall firm cost of capital is 10%. The firm has $42 million in debt and has 14.5 million shares of stock. What is the estimated value per share?

   	1.	18.6
   	2.	19.6
   	3.	20.6
   	4.	21.6
   	5.	22.6

Answer 1

Present Value = 1100 Value = 1000 Coupon = 95 Time = 6 year (can time) to call yield to call Using financial calculator, Pr= -1100 fu= 1150 N = 6 Pm T = 95 CPT ly 9.2 yield to call = 9.2% Ang growth=5% 7 Terminal value (P3) = fcfy Cost of a growth Capital rate = FC f3 (It growth) 10-05 2 0x (1.05) 05 420 Firm value value (420+20) = -182 + 12040 + 330:58 = 341.16 stock Price = time value - deft & Cash No. of shares 341.16 - 42 + 0 = 1405 $20.63 $20.6 Ans