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Homework answers / question archive / KRJ International’s 2018 balance sheet shows long-term debt with a book value of $1,000,000 and the company’s bonds are currently trading at 110% of their par value with a yield to maturity of 7

KRJ International’s 2018 balance sheet shows long-term debt with a book value of $1,000,000 and the company’s bonds are currently trading at 110% of their par value with a yield to maturity of 7

Finance

KRJ International’s 2018 balance sheet shows long-term debt with a book value of $1,000,000 and the company’s bonds are currently trading at 110% of their par value with a yield to maturity of 7.5%. The company’s footnotes also reported that that firm was a heavy user of operating leases with future lease obligations averaging $400,000 per year over the next 8 years. What should be the total amount of debt used to determine the weight of debt in the WACC calculation? Please show all work and calulations in excel.

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Market value of long term debt = 1000000*110% =$       1,100,000Add: PV of operating leases = 400000*(1.075^8-1)/(0.075*1.075^8) =$       2,342,921Total amount of debt to be used for WACC calculation =$       3,442,921