#TOTAL CONVERT ENTERPRISE HOW TO#

Market value from the above data can easily be found using the PV formula in excel. I have assumed the following data to explain the formula: Calculation of Market Value of Debt Using Microsoft ExcelДЄ simple Microsoft excel formula can also be used to calculate the market value of debt. The reverse is going to be true if the current rate of interest is less than the companyвЂ™s interest rate. As the current interest rate prevalent in the market is higher than the interest rate the company is paying, the market value of its debt will be lower than what is reflected in its books. The market value of debt has an inverse relationship with the current interest rate. Relationship of Market Value of Debt and Current Market Interest Rate Thus, investors will be willing to pay less for it. Since the current interest rate is 7.5%, which is higher than the 6%, makes sense that the debtвЂ™s market value is lower than the book value. See also 4 Limitation of medium-term finance with detailed explanation One way to check the above result is to take the income statement interest expense, which is $60 million, and divide it by the book value of the debt, which is $1000 million. The company has also determined that the blended cost of new debt would be 7.5%. A company has a total debt of $1 billion on its balance sheet, with interest expenses of $60 million and a maturity of 6 years. LetвЂ™s plug in some numbers to make sense of this formula. LetвЂ™s start by going through each of the variables of the formula. Now, letвЂ™s reproduce the above-discussed formula for performing calculations:

A maturity is set equal to the face-value weighted average maturity of the debt.

Coupons are set equal to the interest expenses on all the debt and.

To think of the entire debt on the books as one coupon bond,.

The easiest way to convert book value debt into market value debt is Converting book value debt into market value debt:

Care is to be exercised in determining debt market value, as this is not an exact methodology. This helps the company evaluate future investments and projects and support various vital decisions.ДЇor more precise results, prepare an estimate of each debtвЂ™s market value separately and add them all up.

#TOTAL CONVERT ENTERPRISE HOW TO#

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Total convert enterprise