FIN 6406 Corporate finance
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Using the attached financial statements for Widget Corp, find FCF2014. 1. Seven years ago ABC Inc. issued a series of $1,000 bonds (i.e. Par = $1,000) @ 10% compounded semiannually for a term of 30 years. Additionally, the bonds are callable with a call premium of two coupon payments. Today, the market rate is 10% and each single bond is trading for $844.76. If ABC Inc. wants to raise new debt today, what would be ABC’s marginal cost of debt? Assume no significant change in ABC’s bond rating. 1. Considering Stand Alone Risk and the calculation of the Coefficient of Variation (CV), you are to develop a series of at least five historical returns for a financial asset and from these returns you are to calculate the CV for this financial asset. 1. You are considering making an investment in a project. The initial cost (I0) equals $1,200. In return for this initial outlay, you will own the rights to three future cash flows: CF1 = $300, CF2 = $400, and CF3 = $500. First, if the appropriate discount rate for this investment is 12%, what is the NPV for this project? Second, what discount rate would create a situation such that NPV = 0, i.e. what discount rate would make NPV = 0? Make sure that you show your explanation for part two of this question with an NPV calculation – do not just provide a rate. Third, what is the IRR for this project? 1. If Widget Corp is a no growth perpetuity and given its FCF from 2014 in question one, estimate the value of Widget Corp. Assume the appropriate market determined risk adjusted required rate of return is 10%. 1. Assume FCFLMNO = $100,000,000 for 2014. The company’s annual growth rate in its FCFs is 5%. The company employs the three major capital