case1_GroupF02

7/30/2019 case1_GroupF02

1/6

Corporate Finance

Section F

Group

Number Section Reg No Name Email Phone

F02 F 0339/49 Srijan Sanket [email protected] 9874020897

F02 F 0370/49 Udit Singh [email protected] 9804035176

F02 F 0372/49 Utkarsh Rai [email protected] 9051248977

F02 F 0391/49

Vijay Kumar

Majumdar [email protected]
mailto:[email protected]%C2%A0mailto:[email protected]%C2%A0mailto:[email protected]:[email protected]:[email protected]%C2%A0mailto:[email protected]%C2%A0mailto:[email protected]:[email protected]%C2%A0mailto:[email protected]%C2%A0


2/6

1. A bond can sell at either the face value or at an amount lesser or greater than the face value prior to its

maturity date. When the bond sell at price greater than the face value are said to be at a premium.

Discount bonds sell at a price lesser than the face value.

Company raised money by issuing bonds with 8% coupon with 9% interest rate is calculated by

estimating Present Value @(40 periods, 4.5%, $400000 payment and $100000000 FV)

Net Present Value of investment at 4.5% semi-annually for 20 years with a payment of 400000 $ 90,79,920.78

Following table provides Investment in a bond from the investor point of view. With interest rate 9% andcoupon rate 8% for 20 years.

The amounts computed from the balance sheet calculated at December 31, 2006, and December 31,2007are coming out to be $ 92,58,589.55 and $ 92,92,611.26 respectively

earLiability at thebeginning of the year

Interest at 4.5% =Yield Rate/1/2 year

Liability at the end ofperiod Before Payment

PaymentLiability at the end ofPeriod

econd Half of 1999$ 90,79,920.78 $ 4,08,596.44 $ 94,88,517.21 $ 4,00,000.00 $ 90,88,517.21

rst Half of 2000$ 90,88,517.21 $ 4,08,983.27 $ 94,97,500.49 $ 4,00,000.00 $ 90,97,500.49

econd Half of 2000$ 90,97,500.49 $ 4,09,387.52 $ 95,06,888.01 $ 4,00,000.00 $ 91,06,888.01

rst Half of 2001$ 91,06,888.01 $ 4,09,809.96 $ 95,16,697.97 $ 4,00,000.00 $ 91,16,697.97

econd Half of 2001$ 91,16,697.97 $ 4,10,251.41 $ 95,26,949.38 $ 4,00,000.00 $ 91,26,949.38

rst Half of 2002$ 91,26,949.38 $ 4,10,712.72 $ 95,37,662.10 $ 4,00,000.00 $ 91,37,662.10

econd Half of 2002$ 91,37,662.10 $ 4,11,194.79 $ 95,48,856.90 $ 4,00,000.00 $ 91,48,856.90

rst Half of 2003$ 91,48,856.90 $ 4,11,698.56 $ 95,60,555.46 $ 4,00,000.00 $ 91,60,555.46

econd Half of 2003$ 91,60,555.46 $ 4,12,225.00 $ 95,72,780.45 $ 4,00,000.00 $ 91,72,780.45

rst Half of 2004$ 91,72,780.45 $ 4,12,775.12 $ 95,85,555.57 $ 4,00,000.00 $ 91,85,555.57

econd Half of 2004$ 91,85,555.57 $ 4,13,350.00 $ 95,98,905.57 $ 4,00,000.00 $ 91,98,905.57

rst Half of 2005$ 91,98,905.57 $ 4,13,950.75 $ 96,12,856.32 $ 4,00,000.00 $ 92,12,856.32

econd Half of 2005$ 92,12,856.32 $ 4,14,578.53 $ 96,27,434.86 $ 4,00,000.00 $ 92,27,434.86

rst Half of 2006$ 92,27,434.86 $ 4,15,234.57 $ 96,42,669.43 $ 4,00,000.00 $ 92,42,669.43

econd Half of 2006$ 92,42,669.43 $ 4,15,920.12 $ 96,58,589.55 $ 4,00,000.00 $ 92,58,589.55

rst Half of 2007$ 92,58,589.55 $ 4,16,636.53 $ 96,75,226.08 $ 4,00,000.00 $ 92,75,226.08

econd Half of 2007$ 92,75,226.08 $ 4,17,385.17 $ 96,92,611.26 $ 4,00,000.00 $ 92,92,611.26

rst Half of 2008$ 92,92,611.26 $ 4,18,167.51 $ 97,10,778.76 $ 4,00,000.00 $ 93,10,778.76

econd Half of 2008$ 93,10,778.76 $ 4,18,985.04 $ 97,29,763.81 $ 4,00,000.00 $ 93,29,763.81


3/6

rst Half of 2009$ 93,29,763.81 $ 4,19,839.37 $ 97,49,603.18 $ 4,00,000.00 $ 93,49,603.18

econd Half of 2009$ 93,49,603.18 $ 4,20,732.14 $ 97,70,335.32 $ 4,00,000.00 $ 93,70,335.32

rst Half of 2010$ 93,70,335.32 $ 4,21,665.09 $ 97,92,000.41 $ 4,00,000.00 $ 93,92,000.41

econd Half of 2010

$ 93,92,000.41 $ 4,22,640.02 $ 98,14,640.43 $ 4,00,000.00 $ 94,14,640.43rst Half of 2011

$ 94,14,640.43 $ 4,23,658.82 $ 98,38,299.25 $ 4,00,000.00 $ 94,38,299.25

econd Half of 2011$ 94,38,299.25 $ 4,24,723.47 $ 98,63,022.71 $ 4,00,000.00 $ 94,63,022.71

rst Half of 2012$ 94,63,022.71 $ 4,25,836.02 $ 98,88,858.74 $ 4,00,000.00 $ 94,88,858.74

econd Half of 2012$ 94,88,858.74 $ 4,26,998.64 $ 99,15,857.38 $ 4,00,000.00 $ 95,15,857.38

rst Half of 2013$ 95,15,857.38 $ 4,28,213.58 $ 99,44,070.96 $ 4,00,000.00 $ 95,44,070.96

econd Half of 2013$ 95,44,070.96 $ 4,29,483.19 $ 99,73,554.15 $ 4,00,000.00 $ 95,73,554.15

rst Half of 2014$ 95,73,554.15 $ 4,30,809.94 $ 1,00,04,364.09 $ 4,00,000.00 $ 96,04,364.09

econd Half of 2014$ 96,04,364.09 $ 4,32,196.38 $ 1,00,36,560.48 $ 4,00,000.00 $ 96,36,560.48

rst Half of 2015$ 96,36,560.48 $ 4,33,645.22 $ 1,00,70,205.70 $ 4,00,000.00 $ 96,70,205.70

econd Half of 2015$ 96,70,205.70 $ 4,35,159.26 $ 1,01,05,364.95 $ 4,00,000.00 $ 97,05,364.95

rst Half of 2016$ 97,05,364.95 $ 4,36,741.42 $ 1,01,42,106.38 $ 4,00,000.00 $ 97,42,106.38

econd Half of 2016$ 97,42,106.38 $ 4,38,394.79 $ 1,01,80,501.16 $ 4,00,000.00 $ 97,80,501.16

rst Half of 2017$ 97,80,501.16 $ 4,40,122.55 $ 1,02,20,623.72 $ 4,00,000.00 $ 98,20,623.72

econd Half of 2017$ 98,20,623.72 $ 4,41,928.07 $ 1,02,62,551.78 $ 4,00,000.00 $ 98,62,551.78

rst Half of 2018$ 98,62,551.78 $ 4,43,814.83 $ 1,03,06,366.61 $ 4,00,000.00 $ 99,06,366.61

econd Half of 2018$ 99,06,366.61 $ 4,45,786.50 $ 1,03,52,153.11 $ 4,00,000.00 $ 99,52,153.11

rst Half of 2019$ 99,52,153.11 $ 4,47,846.89 $ 1,04,00,000.00 $ 4,00,000.00 $ 1,00,00,000.00

$ 1,00,00,000.00 $ - $ 1,00,00,000.00 $ 1,00,00,000.00 $ -

Net Present Value of investment at 3% semi-annuallyfor 20 years with a payment of 400000 $1,23,11,477.20

Following table provides Investment in a bond from the investor point of view. With interest rate 6% andcoupon rate 8% for 20 years.

The amounts computed from the balance sheet calculated at December 31, 2006, and December 31,2007are coming out to be $ 1,17,41,314.77 and $ 1,16,44,360.84 respectively with interest rate 6%

Current Market Value of the bonds outstanding at current effective interest rate of 6% on December2008 is $1,15,41,502.41


4/6

YearLiability at thebeginning of the year

Interest at 3% =

Yield Rate/1/2year

Liability at the end ofperiod Before Payment Payment

Liability at the end ofPeriod

econd Half of 1999

$ 1,23,11,477.20 $ 3,69,344.32 $ 1,26,80,821.51 $ 4,00,000.00 $ 1,22,80,821.51First Half of 2000

$ 1,22,80,821.51 $ 3,68,424.65 $ 1,26,49,246.16 $ 4,00,000.00 $ 1,22,49,246.16econd Half of 2000

$ 1,22,49,246.16 $ 3,67,477.38 $ 1,26,16,723.54 $ 4,00,000.00 $ 1,22,16,723.54First Half of 2001

$ 1,22,16,723.54 $ 3,66,501.71 $ 1,25,83,225.25 $ 4,00,000.00 $ 1,21,83,225.25econd Half of 2001

$ 1,21,83,225.25 $ 3,65,496.76 $ 1,25,48,722.01 $ 4,00,000.00 $ 1,21,48,722.01First Half of 2002

$ 1,21,48,722.01 $ 3,64,461.66 $ 1,25,13,183.67 $ 4,00,000.00 $ 1,21,13,183.67econd Half of 2002

$ 1,21,13,183.67 $ 3,63,395.51 $ 1,24,76,579.18 $ 4,00,000.00 $ 1,20,76,579.18First Half of 2003

$ 1,20,76,579.18 $ 3,62,297.38 $ 1,24,38,876.55 $ 4,00,000.00 $ 1,20,38,876.55econd Half of 2003

$ 1,20,38,876.55 $ 3,61,166.30 $ 1,24,00,042.85 $ 4,00,000.00 $ 1,20,00,042.85First Half of 2004

$ 1,20,00,042.85 $ 3,60,001.29 $ 1,23,60,044.13 $ 4,00,000.00 $ 1,19,60,044.13econd Half of 2004

$ 1,19,60,044.13 $ 3,58,801.32 $ 1,23,18,845.46 $ 4,00,000.00 $ 1,19,18,845.46First Half of 2005

$ 1,19,18,845.46 $ 3,57,565.36 $ 1,22,76,410.82 $ 4,00,000.00 $ 1,18,76,410.82econd Half of 2005

$ 1,18,76,410.82 $ 3,56,292.32 $ 1,22,32,703.15 $ 4,00,000.00 $ 1,18,32,703.15First Half of 2006

$ 1,18,32,703.15 $ 3,54,981.09 $ 1,21,87,684.24 $ 4,00,000.00 $ 1,17,87,684.24econd Half of 2006

$ 1,17,87,684.24 $ 3,53,630.53 $ 1,21,41,314.77 $ 4,00,000.00 $ 1,17,41,314.77First Half of 2007

$ 1,17,41,314.77 $ 3,52,239.44 $ 1,20,93,554.21 $ 4,00,000.00 $ 1,16,93,554.21econd Half of 2007

$ 1,16,93,554.21 $ 3,50,806.63 $ 1,20,44,360.84 $ 4,00,000.00 $ 1,16,44,360.84First Half of 2008

$ 1,16,44,360.84 $ 3,49,330.83 $ 1,19,93,691.66 $ 4,00,000.00 $ 1,15,93,691.66econd Half of 2008

$ 1,15,93,691.66 $ 3,47,810.75 $ 1,19,41,502.41 $ 4,00,000.00 $ 1,15,41,502.41First Half of 2009

$ 1,15,41,502.41 $ 3,46,245.07 $ 1,18,87,747.49 $ 4,00,000.00 $ 1,14,87,747.49econd Half of 2009

$ 1,14,87,747.49 $ 3,44,632.42 $ 1,18,32,379.91 $ 4,00,000.00 $ 1,14,32,379.91First Half of 2010

$ 1,14,32,379.91 $ 3,42,971.40 $ 1,17,75,351.31 $ 4,00,000.00 $ 1,13,75,351.31econd Half of 2010

$ 1,13,75,351.31 $ 3,41,260.54 $ 1,17,16,611.85 $ 4,00,000.00 $ 1,13,16,611.85First Half of 2011

$ 1,13,16,611.85 $ 3,39,498.36 $ 1,16,56,110.20 $ 4,00,000.00 $ 1,12,56,110.20econd Half of 2011

$ 1,12,56,110.20 $ 3,37,683.31 $ 1,15,93,793.51 $ 4,00,000.00 $ 1,11,93,793.51First Half of 2012

$ 1,11,93,793.51 $ 3,35,813.81 $ 1,15,29,607.31 $ 4,00,000.00 $ 1,11,29,607.31

econd Half of 2012$ 1,11,29,607.31 $ 3,33,888.22 $ 1,14,63,495.53 $ 4,00,000.00 $ 1,10,63,495.53


5/6

First Half of 2013

$ 1,10,63,495.53 $ 3,31,904.87 $ 1,13,95,400.40 $ 4,00,000.00 $ 1,09,95,400.40econd Half of 2013

$ 1,09,95,400.40 $ 3,29,862.01 $ 1,13,25,262.41 $ 4,00,000.00 $ 1,09,25,262.41First Half of 2014

$ 1,09,25,262.41 $ 3,27,757.87 $ 1,12,53,020.28 $ 4,00,000.00 $ 1,08,53,020.28econd Half of 2014

$ 1,08,53,020.28 $ 3,25,590.61 $ 1,11,78,610.89 $ 4,00,000.00 $ 1,07,78,610.89First Half of 2015

$ 1,07,78,610.89 $ 3,23,358.33 $ 1,11,01,969.22 $ 4,00,000.00 $ 1,07,01,969.22econd Half of 2015

$ 1,07,01,969.22 $ 3,21,059.08 $ 1,10,23,028.30 $ 4,00,000.00 $ 1,06,23,028.30First Half of 2016

$ 1,06,23,028.30 $ 3,18,690.85 $ 1,09,41,719.14 $ 4,00,000.00 $ 1,05,41,719.14econd Half of 2016

$ 1,05,41,719.14 $ 3,16,251.57 $ 1,08,57,970.72 $ 4,00,000.00 $ 1,04,57,970.72First Half of 2017

$ 1,04,57,970.72 $ 3,13,739.12 $ 1,07,71,709.84 $ 4,00,000.00 $ 1,03,71,709.84econd Half of 2017

$ 1,03,71,709.84 $ 3,11,151.30 $ 1,06,82,861.14 $ 4,00,000.00 $ 1,02,82,861.14

First Half of 2018$ 1,02,82,861.14 $ 3,08,485.83 $ 1,05,91,346.97 $ 4,00,000.00 $ 1,01,91,346.97

econd Half of 2018

$ 1,01,91,346.97 $ 3,05,740.41 $ 1,04,97,087.38 $ 4,00,000.00 $ 1,00,97,087.38First Half of 2019

$ 1,00,97,087.38 $ 3,02,912.62 $ 1,04,00,000.00 $ 4,00,000.00 $ 1,00,00,000.00

$ 1,00,00,000.00 $ - $ 1,00,00,000.00 $ 1,00,00,000.00 $ -

2. When Rene Cook, issue $ 10 million, 6% bonds on January 2, 2009 the total amount raised through

issuance would be $ 10 million. Current market rate existing for the old bonds is 6%. The market price of

the bonds at this price is $115.43. This means that each $1000 bond would have to be repurchased forabout $ 1,154. The extra money spend by the company for buying back these bonds would be at least

($1,154-$1000) X 100000 = $1.54 million.

From balance sheet perspective the bonds were sold at a discount price of $ 9.3 million. Thus total loss

incurred to the company would be $11.54million -$9.3 million = $2.24 million. The $ 2.24 million loss

would shrink the 2009 projected earnings and slow the growth rate in earnings.

The cash flow of the company is given in the following table

Cash Flow

Cash from issuance of newshares $ 10000000.00

Cash to buy back old shares ($ 11541502.41)Bond premium paid for the

older bonds ($ 400000.00)

Total Cash flow ($ 1941502.41)


6/6

Total cash flows for the company during the issuance of the new bonds comes out to be ($1941502.41)

From the calculations from the excel sheet the NPV of the cash flows are coming out to be same for old

and the new bonds.

Date Old Bonds New BondsNPV of CashFlows $ 1,15,93,691.66 $ 1,15,93,691.66

We would not recommend issuing the new bonds as the NPV for the both the old bonds and new bonds

are coming out to be same. However, from the perspective of current years earning the cash flow of

($19,415,02.41) would shrink the projected earnings and slow the growth rate in earnings.

In terms of Principal and Interest Payments, the new bonds would be of same cost as the old bondsThe number of new bonds to be issued to pay back the amount for the old bonds is 11542

3. If 11542 bonds are issued, the net present value is coming out to be $1,15,94,174.76 which is more

than the NPV of the old bonds. Thus, we would recommend issuing 11542 bonds.

Old Bonds New Bonds(11542)NPV of CashFlows $1,15,93,691.66 $1,15,94,174.76

Documents

case1_GroupF02