Please answer the three questions below: Weir Inc. has a bond in its capital str

Question

Please answer the three questions below:

Weir Inc. has a bond in its capital structure that has 20 years to maturity left. The bond has a 9.00% coupon paid annually, and has a par value of $1,000. If investors want to receive 10% from this bond, the bond price should be: O 956.37% O 932.89.00% O 914.86% O 878.44% O 863.27% Which of the following statements is CORRECT? O In a bankruptcy, preferred shareholders come before bondholders O Compared to common stocks, preferred stock is less risky to the holders of the security O Corporations cannot buy the preferred stocks of other corporation O Dividends on preferred stocks are tax deductible by the issuing firm O A firm can stop paying dividends to preferred shareholders while it continues to pay dividends to common shareholders Suppose that Acme Inc. had a net income of $20,000 on sales of $325,000 and total assets are $250,000 at the end of the fiscal year. The firm's debt to assets ratio was 0.45. What is the return on equity? (hint: use the DuPont relationship and change debt/asset to equity/assets and finally to assets/equity) O 13.82% O 14.55% O 15.23% O 16.00% O 16.80%

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Bond Price = PV(Rate,Nper,PMT,FV) = PV(10%,20,90,1000) = 914.86%

Option C (914.86%) is the correct answer.

Part B:

Option B is the correct answer.

Part C:

Return on Equity = 20000/325000*325000/250000*250000/(.55*250000) = 14.55%

Option B (14.55%) is the correct answer.

Thanks.

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