The formula for the market value of debt is E((1-(1/(1 + R)^Y))/R) + T/(1 + R)^Y, where E is the annual interest expense, R is the cost of debt, T is the total debt and Y is the average maturity, in years, of the debt. However, calculating the market value of debt can be tricky, because not many firms carry their debt in bond form.Continue Reading
A lot of companies carry debt that is not traded, like loans from a bank. The value of that debt is specified in terms of book value rather than market value. This formula calculates the whole debt as a coupon bond, assuming that the coupon is equal to the interest expense and the maturity is equal to the average maturity of the debt, valued at the current debt cost and weighted at face value.
Therefore, if the company's debt cost is 6 percent, the interest expense is $100 million, the total amount of debt is $2 billion and the average time to maturity is three years, the estimation looks like this: 100((1-1/1.06^3))/0.06) + (2,000/1.06^3). The values here are in millions, so the estimated value comes to roughly $1,946 million dollars. More precise results come from adding all of a company's debt issues separately.Learn more about Economics
There are no seven-letter words in the English language that can be formed using all of the letters "E," "I," "M," "N," "R," "T," and "V." The closest alternatives are six-letter words such as "invert," "minter," and "vermin."Full Answer >
Advantages of exporting include increased sales, gaining global market shares, diversification, lower cost per unit and expansion within the company. Disadvantages include extra costs, the possibility of needing to change products, payment collection complications and difficulties in getting reliable market information.Full Answer >
According to Investopedia, the market value of equity is calculated by multiplying the number of a company's outstanding shares by the current price for which the stock is sold. If either the price of the stock or the number of outstanding shares changes, so does the market value of equity.Full Answer >
GDP stands for gross domestic product, which is the market value of finished goods and services manufactured in a country within a set time frame, typically one year. This includes consumer spending, government spending, industry investments and a country’s exports minus its imports.Full Answer >