Problem 5-22: Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price 5 $1,090).
a. What is the yield to maturity?
b. What is the yield to call if they are called in 5 years?
c. Which yield might investors expect to earn on these bonds, and why?
d. The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
Problem 7-17: What is the required rate of return on a preferred stock with a $50 par value, a stated annual dividend of 7% of par, and a current market price of (a) $30, (b) $40, (c) $50, and (d) $70? (Assume the market is in equilibrium with the required return equal to the expected return.)
Mini Case Study
During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task:
* The firm’s tax rate is 25%.
* The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. There are 70,000 bonds. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.
* The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. There are 200,000 outstanding shares. Jana would incur flotation costs equal to 5% of the proceeds on a new issue.
* Jana’s common stock is currently selling at $50 per share. There are 3 million outstanding common shares. Its last dividend (D0) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana’s beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus-judgmental-risk-premium approach, the firm uses a 3.2% risk premium.
a. (1) What sources of capital should be included when you estimate Jana’s weighted average cost of capital?
(2) Should the component costs be figured on a before-tax or an after-tax basis?
(3) Should the costs be historical (embedded) costs or new (marginal) costs?
b. What is the market interest rate on Jana’s debt, and what is the component cost of this debt for WACC purposes?
d. (1) What are the two primary ways companies raise common equity?
(2) Why is there a cost associated with reinvested earnings?
(3) Jana doesn’t plan to issue new shares of common stock. Using the CAPM approach, what is Jana’s estimated cost of equity?
f. What is the cost of equity based on the own-bond-yield-plus-judgmental-risk-premium method?
m. Jana is interested in establishing a new division that will focus primarily on developing new Internet-based projects. In trying to determine the cost of capital for this new division, you discover that specialized firms involved in similar projects have, on average, the following characteristics: Their capital structure is 10% debt and 90% common equity; their cost of debt is typically 12%; and they have a beta of 1.7. Given this information, what would your estimate be for the new division’s cost of capital?
n. What are three types of project risk? How can each type of risk be considered when thinking about the new division’s cost of capital?
Evidence based teaching plan- hand washing in young children
Evidence based teaching plan- hand washing in young children.
Title Health Care Need – This should be one – two paragraphs which succinctly describe your topic and its significance in your target population. You will need supporting evidence for any claims you make (citations). Target Audience – This should be a detailed description of your target audience. You should go to bcps.org and look up the school for which you have signed up. You will need demographic information such as how many students are in the school, what is the socioeconomic status of the student population, what ethnicities are represented, etc. Greatschools.org and schooldigger.com are two additional resources, among others, that might be helpful as well. Barriers to Learning – In this section you should describe in detail three possible learning barriers to your teaching project, specific to your population. Learning Outcomes – In this section you should create three concrete and measurable learning outcomes for your teaching project. These should be created with the idea that you will assess whether your learning outcomes have been met on the day you are at the school. Method of Content Presentation – In this section you should describe how you will present your teaching project to the target population. You should include here the evidence you found to support the method of learning you chose for your target population. Be sure to include citations. Method of Evaluating the Learning Outcomes – How will you measure whether your learning outcomes were met by each student? What is the best method to evaluate learning in this age group? Be sure to include citations with the evidence you found to support your decisions to create an age-appropriate evaluation plan. Thorough, Detailed Content Outline – In this section you should create a thorough, detailed outline of all of the content you will be teaching the students. References – Place your references in APA format in this section. You should include a minimum of four scholarly references, two of which must be articles from peer-reviewed scholarly journals.
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