Question: On August 1, 1998, Georgina Comer, CFO of Globalcom Inc. was meeting with the team of investment bankers who were helping Globalcom issue bonds worth $ 6 Billion. The company planned to issue $2 Billion in medium term bonds that will mature in 5 Years and $4 billion in long-term bonds with a maturity of 30 years. Since Globalcom was issuing US dollar denominated bonds, these bonds were expected to make semi-annual coupon payments. The bankers had put together a report on current market trends and the exhibits below provide some of the information that was included in the report that Georgina received. At the time all of Globalcom's bonds were rated A+ by S&P, but after the issue, it was widely expected that all of Globalcom's bonds' ratings would go down to BBB+.
a. Estimate the yield to maturity (YTM) that Globalcom would have had to offer to investors for the 5 year bonds if they were to be issued today?
b. To the nearest cent, what price per $100 of face value would Georgina have gotten for her 30 year bonds if she decides to set the coupon rate at 6% for these bonds?
c. To the nearest cent, what would be your estimate of intrinsic value of Globalcom equity share?
Information related to above question is enclosed below:
Attachment:- Exhibits.rar