Delta Corporation has a bond issue outstanding with an annual coupon interest rate of 7 percent and 4 years remaining until matu
rity. The par value of the bond is $1,000. Determine the current value of the bond if present market conditions justify a 14 percent required rate of return. The bond pays interest annually.
1 answer:
Answer:
The current value of the bond is $796.04
Explanation:
The current value of a bond is the present value of all the cash inflows expected from the bond in the form of an annuity of interest payments and the term end face value payment discounted by the required rate of return or market interest rates. Thus, the current price of this bond will be,
Interest payment from the bond per year = 1000 * 0.07 = $70
The present value of ordinary annuity formula is attached in the answer.
Price = 70 * [ (1 - (1+0.14)^-4) / 0.14 ] + 1000 / (1.14)^4
Price of the bond = $796.04
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Answer:
- 1200 BEPunits
- $14,400 BEP dollars
- second scenario
- 1200 BEPunits
- $14,400 BEP dollars
Explanation:
contribution margin = Sales - Variable Cost
12 - 10 = 2 contribution margin
fixed expenses = 2,400
BEP = 2,400/2 = 1,200 units
<u>Resuming: </u>each unit contributes with $2 dollars therefore it needs to sale 1,200 untis to pay the fixed cost.
units x sales price = sales revenue
1,200 x 12 = 14,400 BEP in Dollars
Also it is posible to get this by using contribution margin ratio
in the BEP formula:
contribution margin/sales price = 2/12 = 1/6
fixed cost /contribution margin ratio = 2,400/(1/6) = 14,400
Scenario were fixed cost increase:
increase in fixed/contribution margin + previous BEP = BEPunits
increase in fixed/contribution margin ratio + previous BEP = BEPdollars
600 fixed cost /contribution margin = 600/2 = 300 more units to our prevous 1,200 total of 1,500
600 fixed cost /contribution margin ratio = 600/(1/6) = $3,600 more sales revenue to our prevous 14,400 total of 18,000