Return ta Edgehill, Inc. has 335,000 bonds outstanding. The bonds have a par value of $1,000,...

Question

Question

Return ta Edgehill, Inc. has 335,000 bonds outstanding. The bonds have a par value of $1,000, a coupon rate of 5.6 percent pa

Answer 1

Answer #1

Answer:

Working:

Number of shares outstanding = 8.5 million = 8,500,000

Market value of Equity = Number of shares outstanding * Market price = 8500000 * $31 = $263,500,000

Marker value of debt:

Given:

Par value = $1,000

Semiannual coupon = 1000 * 5.6% / 2 = $28

Number of semiannual periods = 13 * 2 = 26

Semiannual yield to maturity = 5.8% / 2 = 2.9%

Hence:

Price of bond = PV (rate, nper, pmt, fv, type) = PV (2.9%, 26, -28, -1000, 0) = $981.91567093

Market value of bond = Number of bonds * Price of bond = 335000 * 981.91567093 = 328,941,749.76

Debt-equity ratio = 328941749.76 / 263500000 = 1.248

Answer 2

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