Credit rating Interest rate AAA. 2.59% AA. 2.62 A. 3.03 BBB. 4.32 BB. 5.62 B. 8.

Question

Credit rating Interest rate AAA. 2.59% AA. 2.62 A. 3.03 BBB. 4.32
BB. 5.62 B. 8.32

Consider the table given below to answer the first question (shares and market values in millions). Number of Shares Market Stock Price- Capitalization Callaway Golf (ELY) Alaska Air Group (ALK) Entergy (ETR) Yum! Brands (YUM) General Electric (GE) 93.8 $8.76 . $ 821 124.7 80.7710,074 178.5 75.92 13,551 408.7 77.77 31,875 9,331.0 30.34283,091 a. The price of Entergy stock has risen to $90. What is the market value of the firm's equity if the number of outstanding shares does not change? (Enter your answer in billions rounded to 3 decimal places.) Market value b. The rating agency has revised Catalytic Concept's bond rating to A (use Table 22). What interest rate approximately, would the company now need to pay on its bonds? (Enter your answer as a percent rounded t decimal places.) Interest rate

Explanation / Answer

a.

Market value = Number of shares of Entergy x Price x 1 million / 1 billion

Market value = 178.5 x 90 x 1000,000 /1000,000,000

Market value = $16.065 billion

b.

Applicable rating A hence, the interest rate against A rating should be applied i.e. 3.03%

Note: Required decimal place is not captured in image hence, I am keeping it to two decimal places.

Interest rate = 3.03% (rounded to two decimal places)

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