Bond Value as Maturity Approaches

Bond Value as Maturity Approaches

An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity equal to 8.6%. One bond, Bond C, pays an annual coupon of 10.5%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 8.6% over the next 4 years, what will be the price of each of the bonds at the following time periods? Assume time 0 is today. Fill in the following table. Round your answers to the nearest cent.

t	Price of Bond C	Price of Bond Z
0	$ HTMLCONTROL Forms.HTML:Text.1 Item 1	$ HTMLCONTROL Forms.HTML:Text.1 Item 2
1	HTMLCONTROL Forms.HTML:Text.1 Item 3	HTMLCONTROL Forms.HTML:Text.1 Item 4
2	HTMLCONTROL Forms.HTML:Text.1 Item 5	HTMLCONTROL Forms.HTML:Text.1 Item 6
3	HTMLCONTROL Forms.HTML:Text.1 Item 7	HTMLCONTROL Forms.HTML:Text.1 Item 8
4	HTMLCONTROL Forms.HTML:Text.1 Item 9

Free Cash Flow Valuation

Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 8% rate. Dozier's weighted average cost of capital is WACC = 18%.

	Year
	1	2	3
Free cash flow ($ millions)	-$20	$30	$40

0. What is Dozier's terminal, or horizon, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Round your answer to two decimal places. $

HTMLCONTROL Forms.HTML:Text.1

Item 1

million

1. What is the current value of operations for Dozier? Round your answer to two decimal places. Round intermediate calculations to two decimal places. $

HTMLCONTROL Forms.HTML:Text.1

Item 2

million

2. Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share? Round your answer to the nearest cent. Round intermediate calculations to two decimal places. $