Bond valuation. A tax-exempt bond was recently issued at an annual 10 percent coupon rate and matures 15 years from today. The par value of the bond is $1,000.
If required market rates are 10 percent, what is the market price of the bond?
If required market rates fall to 5 percent, what is the market price of the bond?
If required market rates rise to 14 percent, what is the market price of the bond?
At what required market rate (10 percent, 5 percent, or 14 percent) does the above bond sell at a discount? At a premium?
Bond valuation. A tax-exempt bond was recently issued at an annual 8 percent coupon rate and matures 20 years from today. The par value of the bond is $5,000.
If required market rates are 8 percent, what is the market price of the bond?
If required market rates fall to 4 percent, what is the market price of the bond?
If required market rates rise to 12 percent, what is the market price of the bond?
At what required market rate (8 percent, 4 percent, or 12 percent) does the above bond sell at a discount? At a premium?
Loan amortization. Laurel Regional Hospital needs to borrow $80 million to finance its new facility. The interest rate is 8 percent for the loan. Principal and interest payments are equal debt service payments, made on an annual basis. The length of the loan is 10 years. The CEO would like to develop a loan amortization schedule for this debt issuance. Prepare such a schedule.
Purchase versus lease. Lower Merion Medical Center, a taxpaying entity, has made the decision to purchase a new laser surgical device. The device costs $1,200,000 and will be depreciated on a straight-line basis over 5 years to a zero salvage value. Lower Merion could borrow the full amount at a 6 percent rate for 5 years, which is also the implied borrowing rate for the lease. The after-tax cost of debt equals 4 percent. Alternatively, it could lease the device for 5 years. The before-tax lease payments per year would be $350,000. The tax rate for this center is 40 percent. From a financial perspective, should Lower Merion lease the surgical device or borrow the money to purchase it?
Purchase versus lease. Maryland General Hospital, a taxpaying entity, is considering a leasing arrangement for its ambulance fleet. The fleet of ambulances costs $375,000 and will be depreciated over a 10-year life to a salvage value of $75,000. Maryland General could finance the entire fleet with equal annual debt and principal payments at a before-tax cost of debt of 9 percent and an after-tax cost of debt at 6 percent for 10 years. The implied lease rate is also 9 percent. Alternatively, it could lease the fleet for 10 years. The before-tax lease payments are $45,000 per year for 10 years. Maryland General's tax rate is 40 percent. From a financial perspective, should Maryland General lease or borrow the money to buy the ambulances?
Debt capacity. Northwest Hospital is considering a new replacement hospital and plans to issue long-term bonds to finance the project. Before it meets with its investment bankers, the hospital wants to estimate how much additional debt it can take on. Currently, the hospital has annual debt service payments of $3 million, and its cash flow available to meet debt service payment is $65 million per year. For its new debt issuance, the hospital plans to issue fixed rate debt for 20 years. It also assumes that Fitch Ratings will assign it an A rating. Fitch's median debt service coverage ratio for A rated bonds is 4.4x. The expected fixed interest rate for a 20-year, A rated, tax-exempt bond is 5 percent. Using Fitch's median debt service coverage ratio for an A rated bond along with the prior information, how much additional debt could Northwest Hospital take on?