Compute and explain YTM of bonds, project's APV, after tax WACC, gain on merger

1. What is the expected YTM on a bond that pays a $15 coupon annually, has a $1,000 par value, and matures in six years if the current price of the bond is $978?

2. A project costs $14.7 million is expected to produce cash flows of $4 million a year for 15 years. The opportunity cost of capital is 20%. If the firm has to issue stock to undertake the project and issue costs are $1 million, what is the project's APV?

3. A firm has a total value of $1 millin and debt valued at $400,000. What is the after-tax weighted average cost of capital if the after-tax cost of debt is 12% and the cost of equity is 15%?

4. What is the adjusted present value of a project with a NPV = $15 million, a bond issue cost of $2 million and a stock issue cost of $1 million?

5. Firm A has a value of $100 million, and B has a value of $70 million. Merging the two would allow a cost savings with a present value of $20 million. Firm A purchases B for $75 million. What is the gain form this merger?

6. The XYZ Corporation with a book value of $20 million and a market value of $30 million has been bought by the CDF Corporation witj a book value of $6 million and a market value of $8 million. If the purchase price is $26 million what is the goodwill?

7. Firm A (1.0 million shares outstanding) purchases Firm B with 0.5 million new shares. Value of Firm B is $70 million and the combined firm is worth $250 million. What is the true cost of the merger?

8. A project has the following cash flows: C0=-100,000; C1=50,000; C2=150,000; C3=100,000. If the discount rate changes from 12% to 13%, what is the change in the NPV of the project (approximately)?

Solution Summary

The explanations for the problems are complete with formulas, narrative explanations and answers.

Problem 14-2
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See attached files.
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Income Statement
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