Posted: February 10th, 2023

Question 1) On June 21, 2021, Enbridge Inc, a Canadian pipeline company, issued

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Question 1) On June 21, 2021, Enbridge Inc, a Canadian pipeline company, issued a series of 3.4% senior unsecured debentures that mature on June 21, 2051. If the bonds were priced to yield 4.25% on June 21, 2022, and the entire bond issue had market value of $429,535,203, what is the issue’s aggregate face value? N.B: coupon payments are semi-annual; ignore accrued interest.
2) A company offers a 0.00% credit card promo loan with these terms:
Loan Term: All principal and interest repaid within 11 mos
Loan Rate: 0.00% APR compounded daily until loan expiry or missed pmt
Loan Origination Fee: 3% of proceeds, deducted at loan origination
Min. Principal Pmt: 1% of loan balance each month
Loss of Promotional Rate: a late payment triggers APR change to 19.9% compounded daily
Late payment fee: $45
Early Payment Penalty: None
If the borrower makes each minimum payment on time and repays the entire loan balance at exactly 11 months, what is this loan’s EAR?
3) McDonalds Corp (MCD) shares trade at around $264 (USD)/sh, for a forward P/E ratio estimate of 24.75. In 2022, McDonalds Corp (MCD) recorded a 26.65% profit margin and a 12.40% ROA. The five-yr average payout ratio for MCD is 67.95%. As of 31-dec-22, McDonald’s Total Assets was 50.44b and its net debt was 33.32b. Assume the required return on MCD is 10.81% (five-yr CAGR).
Would it be value-enhancing or value-destroying for McDonalds to decrease its payout ratio? Justify your answer.
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