1. The following is the balance sheet for Crown-well Inc. for the period ending December 2011:
Crown-well Inc. Balance Sheet (2011)
| Cash |
$ 24,000 |
Current Liabilities |
$ 30,000 |
| Other current assets |
51,000 |
Long-Term Notes payable |
33,000 |
| Total current assets |
75,000 |
Bonds |
40,000 |
| Investments |
40,000 |
Common Stock |
150,000 |
| Fixed Assets(Net) |
125,000 |
Retained Earnings |
49,000 |
| Land |
62,000 |
|
|
|
$ 302,000 |
|
$ 302,000 |
The following transactions occurred during 2012:
i. $20,000, sale on some of its investments
ii. $12,000, additional land for expansion
iii. $10,000, bonds payment
iv. $20,000, issuance of common stock
v. $5,000, dividend payment to stockholders
vi. $42,000, Net Income for 2012
vii. $18,000, depreciation
viii. $10,050, taxes
ix. $10,000, Interest expense
x. $18,000, purchase of second piece of land, using $12,000 in bonds and $6,000 in longterm notes payable.
Required:
a) Prepare a balance Sheet for Crown-well Inc. as at period ending 2012.
b) Compute the firm's free cash flows for 2012.
(Hint: In computing FCF, please consider changes in investments and changes in Land as separate items from the Net Fixed Asset in the balance sheet)
2. Consider three bonds, A, B, and C, each paying 7% semiannual coupons, and with face value of USD 1,000. Maturity for each bond is 30 years, 15 years and 5 years respectively.
a. For each bond, calculate the price
(i) when the YTM is 10% and
(ii) when the YTM is 15%.
b. What can you conclude about
(i) the bond price yield relationship and
(ii) the bond price maturity relationship of the three bonds?