| Course | WMBA 6070 Managerial Finance |
|---|---|
| Week | Week 3 |
| Paper type | Valuation brief |
| Length | About 670 words, 5 pages |
| Format | APA 7 student paper |
| School | Walden University |
| Program | Master of Business Administration (MBA) |
| Updated | October 2026 |
Free sample paper for WMBA 6070 Week 3
Our Model Says 96.19, the Lead Investor Says 95.50: Pricing a Crane Company's $8 Million Seven-Year Note Against the Quote and What Management Should Do About the Gap
Student Name
Walden University
WMBA 6070: Managerial Finance
Instructor Name
Month Day, Year
Our Model Says 96.19, the Lead Investor Says 95.50: Pricing a Crane Company's $8 Million Seven-Year Note Against the Quote and What Management Should Do About the Gap
The Issue
Brightwater, the invented crane and rigging firm studied here, plans to raise $8 million through a private placement of senior unsecured notes with insurance company investors, to fund three new cranes and refinance part of its bank line. The proposed terms are a seven-year maturity, a 7.25 percent annual coupon paid semiannually and repayment of principal at maturity. The lead investor has indicated a price of 95.50 per 100 of face value. This brief values the note with a standard model, compares the result with the quote and recommends what management should do.
The Model
The note is worth what its fourteen coupons and final principal are worth today at the return lenders demand for seven-year risk of this grade (Ross et al., 2022). The required yield is built in three parts.
The base is the seven-year Treasury yield, 5.13 percent on October 9, 2026 (U.S. Department of the Treasury, 2026). The second part is a default spread. Brightwater's operating income covers its interest expense about 2.1 times, which in Damodaran's January 2026 table of synthetic ratings for nonfinancial firms corresponds to a Ba2/BB rating and a default spread of 1.84 percent (Damodaran, 2026). The third part is a premium of about 1.0 percent for size and illiquidity, since a privately placed note from a small company cannot be sold easily and the rating table is built from large public firms.
The required yield is therefore about 5.13 + 1.84 + 1.00 = 7.97 percent. Discounting fourteen semiannual coupons of 3.625 and the 100 of principal at 3.985 percent per half-year gives a value of about 96.19.
Table 1
Value of the Note per 100 of Face Value at Three Yields
| Required yield | Price | Proceeds on $8 million | |
|---|---|---|
| 6.97% (no illiquidity premium) | 101.53 | $8,122,000 | |
| 7.97% (model) | 96.19 | $7,695,000 | |
| 8.10% (implied by the 95.50 quote) | 95.50 | $7,640,000 | |
Prices assume semiannual coupons and a seven-year maturity; the company is composite.
Reading the Gap
The quote is 0.69 below the model value, about $55,000 less in proceeds, and implies a yield of about 8.10 percent, roughly 13 basis points more than the model. The gap is small. It says the investors see slightly more risk than the model assumes, most likely in the illiquidity premium, which is the least certain part of the estimate.
The more important comparison is with the model without an illiquidity premium. At 6.97 percent the note would price above par. Brightwater is paying about 1.1 percentage points a year, roughly $90,000 a year on $8 million, because it is small, private and unsecured. That cost, not the 13 basis points, is what management can try to reduce.
What Management Should Do
Three actions could narrow the cost. First, offer the investors a security interest in the crane fleet. Cranes hold their value and can be resold, and secured notes typically carry lower yields than unsecured ones. If security reduced the required yield by half a point, the price would rise to about 98.8, adding roughly $265,000 in proceeds compared with the quote. Second, consider a five-year maturity. With the five-year Treasury at 5.02 percent, the same spreads give a required yield of about 7.86 percent and a value near 97.5. Third, accept the quote if the investors will not move. A difference of $55,000 against an $8 million issue is too small to justify losing the financing, especially when the alternative, the bank line at 7 percent, is shorter, variable and limits future borrowing.
Recommendation
Return to the lead investor with a secured version of the note at the same coupon and ask for a price near 98.8. If the investors decline, accept 95.50. Brealey et al. (2023) observe that the terms of a debt issue, its security, covenants and maturity, often matter as much to its cost as the issuer's credit quality, and the security offer tests that directly.
References
Brealey, R. A., Myers, S. C., & Allen, F. (2023). Principles of corporate finance (14th ed.). McGraw Hill.
Damodaran, A. (2026). Ratings, interest coverage ratios and default spread [Data set]. NYU Stern School of Business. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ratings.html
Ross, S. A., Westerfield, R. W., Jaffe, J., & Jordan, B. D. (2022). Corporate finance (13th ed.). McGraw Hill.
U.S. Department of the Treasury. (2026). Daily Treasury par yield curve rates [Data set]. https://home.treasury.gov/resource-center/data-chart-center/interest-rates
WMBA 6070 Week 3 instructions, in plain terms
Valuation assignments in managerial finance ask students to price a bond issue or a share with a stated model, compare the result with the price the market is quoting and explain what a manager should do about the difference. Instructors expect the model's inputs to be sourced and explained, the calculation to be reproducible and the second half of the paper to interpret the gap rather than restate it. Students should show the price at more than one yield so the sensitivity is visible. Building the required yield from parts, such as a risk-free rate, a default spread and other premiums, helps the reader see which part is most uncertain and where management could act to reduce the firm's borrowing cost.
Inside the WMBA 6070 Week 3 example
The brief states the note's terms and the quote. A model section builds the required yield from the Treasury curve, a default spread from Damodaran's table and an illiquidity premium, cites Ross and colleagues on bond pricing and computes a value of about 96.19. A table shows prices and proceeds at three yields. A section interprets the gap with the quote as small and attributes it to the least certain input, then compares the model price without the illiquidity premium to show the larger cost of being small and unsecured. A section prices three actions: offering security in the crane fleet, shortening the maturity to five years and accepting the quote. The recommendation cites Brealey and colleagues on how terms affect cost. Margin comments flag the model, the gap and the actions.
Reading the WMBA 6070 Week 3 rubric
Graders reward a valuation with sourced inputs and a calculation another analyst could reproduce. Showing the result beside the quoted price, and translating the difference into a yield and dollars, carries weight. The interpretation section carries the most: identifying what the gap most likely reflects, and distinguishing it from larger structural costs, shows judgment. Offering priced actions management can take, rather than general advice, demonstrates practical skill. A clear recommendation that weighs the cost of pressing for a better price against the risk of losing the financing completes the analysis. Instructors also check that coupon frequency is handled correctly. The Treasury and Damodaran sources must be cited so a grader can rebuild the yield.
WMBA 6070 Week 3 help from the desk
Write down the security's terms and the quoted price first. Build the required yield from a current risk-free rate plus sourced premiums, and explain each. Compute the price and show it at two or three yields. Then measure the gap with the quote in price, yield and dollars, and name the input most likely behind it. Marks are lost by stopping at the model price, by using an annual rate for semiannual coupons or by treating the quote as wrong rather than informative. Another frequent gap is advice without numbers. Price each action you suggest. If you would like a custom sample valuation brief for a security your organization is issuing or holding, send us its terms.
Get a WMBA 6070 Week 3 example written to your instructions
Send the Week 3 assignment file, the rubric, and the exhibit carrying the instrument's terms, and a finished valuation brief comes back within 24 to 48 hours at no charge the first time. Say whether your section wants the bond, the equity, or both, since a brief covering two instruments is organized differently from one.
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WMBA 6070 Week 3 questions, answered
Where can I find a free WMBA 6070 Week 3 sample paper?
The private note valuation brief, with the model and the quote compared, is available in full on this page.
What price does the model give?
About 96.19 per 100 of face value at a required yield of about 7.97 percent.
What yield does the quote imply?
About 8.10 percent, roughly 13 basis points above the model.
What does the gap mean?
Investors see slightly more risk, most likely in the illiquidity premium, the least certain input.
What should management do?
Offer security in the crane fleet and ask for about 98.8, accepting 95.50 if refused.