ccra bond chapter

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Joined: Tue Jul 14, 2015 6:55 am

ccra bond chapter

Postby agarwalla.harsha » Sun Oct 11, 2015 4:58 am

a company has net income of $150000 and paid a preffered dividend of 70000 to their shareholders.
calculate the weighted no of shares outstanding to calculate eps:

on jan ist 2007 shares outstanding at the beginning of the year 10000
on july1, 2007 shares issued:4000
on sep 1, 2007 20 % stock dividend
on oct1 , 2007 shares repurchased for the treasury stock:2000

b) what is the book value for a 5 % coupon $5 million debt issue of maturity of 3 years if the market rate is 8%.

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Re: ccra bond chapter

Postby edupristine » Mon Oct 12, 2015 11:25 am

January 1 Initial shares adjusted for the 20% dividend 12000
July 1 Shares issued adjusted for the 20% dividend 4800

OCT 1 Shares of treasury stock repurchased -2000
(no adjustment)

Initial shares 12,000 x 12 months outstanding 144,000

Issued shares 4,800 x 6 months outstanding 28800

Retired treasury shares -2,000 x 3 months retired -6000

Total share-month 166,800

Average shares 166,800 I 12 = 13,900

Basic EPS = (net income- pref. dividend)/wt. avg. shares of income
= $(150000 – 70000)/13,900
= $5.755

b) This is a type of discount bond because market rate is greater than coupon rate.

N= 3
PMT= 5% of $5 million = 250000
FV= $5million
I/Y= 8%
CPT PV = -46,13,435.45

Ending Book value = Beginning book value +interest expense (beginning book value * 8%) - coupon
=> $46,13,435 + $369074.84 -$250000= $4,732,510.29

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