Major Manuscripts, Inc., is currently operating at 70 percent of capacity. All costs and net working capital vary directly with
sales. The tax rate, the profit margin, and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 10 percent
1 answer:
The attached data is required to answer the question
Answer:
$535
Explanation:
In this scenario we need to calculate the additional debt required by Major Manuscript
We expect an increase of 10% of sales
Therefore
Total assets projected = 9,420 * 1.10 = $10,362
Accounts payable projected = 2,200 * 1.10 = $2,420
Current long term debt = $260
Current common stock = $2,400
Retained earnings projected = 4,560 +{(360 - 190) * 1.10} = $4,747
Additional debt required = 10,362 - 2,420 - 260 - 2,400 - 4,747
Additional debt required = $535
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Answer:
The price of the bond is $1000. Thus, option a is the correct answer.
Explanation:
The price of a bond is calculated using the present value of the interest payments made by the bond, which is in the form of an annuity, plus the present value of the face value of the bond. The present value is calculated by discounting the annuity of interest and the face value by the YTM or yield to maturity. In case YTM is not provided, we assume that it is same as or equal to the coupon rate paid by the bond.
The formula for the price of the bond is attached.
Bond Price = 25 * [(1 - (1+0.025)^-8) / 0.025] + 1000 / (1+0.025)^8
Bond Price = $1000
