4.3. Stratton Company has $56 million face value zero-coupon bonds due in 6.5 ye

Question

4.3. Stratton Company has $56 million face value zero-coupon bonds due in 6.5 years, and its ? is 0.52. The total market value of Stratton Company is $82 million and the riskless rate is 2.9%. The company has 1.02 million shares outstanding. Find its price per share.
4.4. Dartmouth Company has a total value of $55 million. Its debt is in the form of zero-coupon bonds, which will mature in 6 years. The face value of bonds is $20 million. The riskless rate is 3.41% at present. The ? of Dartmouth is 0.36. Find the debt/assets ratio of Dartmouth. 4.3. Stratton Company has $56 million face value zero-coupon bonds due in 6.5 years, and its ? is 0.52. The total market value of Stratton Company is $82 million and the riskless rate is 2.9%. The company has 1.02 million shares outstanding. Find its price per share.
4.4. Dartmouth Company has a total value of $55 million. Its debt is in the form of zero-coupon bonds, which will mature in 6 years. The face value of bonds is $20 million. The riskless rate is 3.41% at present. The ? of Dartmouth is 0.36. Find the debt/assets ratio of Dartmouth.

Explanation / Answer

3).

First of all we need to find Present value of the bond.

for which

req rate of return =ror(2.9,52)= 9.98%

PV of bond = 56/1.0998^6.5 = 30.175 million

equity amount = 82-30.175 = 51.825 million

Price per share = 51.825/1.02 = $50.81

4).

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