Greshak Enterprises issues a 2

Greshak Enterprises issues a 22-year zero-coupon bond with a face value
of $100 million. The bond was issued to yield 7.50% per year (which
equated to the market’s required rate of return on Greshak’s debt at the
date of issue).
a. What should the market value of the bond be at the
time of issue?
b. What amount will the purchaser of the bond record on
its books as Investment – Bond.
c. What will the value of that account
(Investment – Bond) be at the end of the last day of 22nd year (i.e., at
d. What best explains how that Investment – Bond account
value changed over that 22-year period on the books of the investor (for
simplicity sake, assume that the original purchaser of the bond held it
until its maturity)?
9. Walsh Manufacturing recently valued its
operations using a standard, discounted cash flow based corporate
valuation model. The calculated value of a company’s operations was
$1,175 million. Walsh’s balance sheet at the valuation date shows $50
million of excess cash and $150 million of marketable securities that
are unrelated to its operations. The balance sheet also shows $188
million in accounts payable, $105 million in accruals, $142 million of
intangible assets, $100 million in bank debt, current portion of L-T
Debt of $100 million, $400 million in bonds, $250 million in common
stock (par value plus paid-in-capital), and $390 million in retained
earnings. What is your best estimate for Walsh’s market value of equity?
10. Greshak Ltd. forecasts its long-term sustainable growth rate to be
4.0%. If the firm’s required rate of return is 12.0% and Greshak
recently paid a $4.00 dividend on each common share, what is its current
estimated value per common share?
11. 14-year, 7.75% semi-annual coupon
bond, with a par value of $1,000, may be called in 4 years at a call
price of $1,040. The bond currently sells for $1,043.75.
a. What is the
bond’s yield to maturity?
b. What is the bond’s current yield?
c. What
is the bond’s yield to call?
d. Explain what each of the yields
calculated above in parts a. through c. represents.

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