Fin68

Posted on February 20, 2017

Finance Assignment Help 68

 

1.The corporate treasurer of Gonic Manufacturing Company expects the company to grow at 4% in the future. She notes that debt will have an interest rate of 4% interest and the corporate tax rate is 35%. She believes that debt will be a cheaper option to finance the growth. The current market price per share of its common stock is $19, and the expected dividend in one year is $0.75 per share. Calculate the cost of the company’s retained earnings and check if the treasurer’s assumption is correct.
 
2.i) The risk-free rate on 30 year U.S. Treasury bonds is 2.75% and the expected rate of return on the overall stock market is 7%. The BOW company has a beta of 1.4. What is the cost of equity?
 
ii) Les argues that the 10 year note is a better risk free rate at 2%. He also argues that the stock market is too high and the expected return is really only 5%. Assume that he is correct. The company has a beta of 1.4. What is the cost of equity?
 
3.What would be the minimum expected return from a new capital investment project to satisfy the suppliers of the capital? Assume the applicable tax rate is 40%, interest on debt is 5%, flotation cost per share of preferred stock is $0.75, and flotation cost per share of common stock is $4. The preferred and common stocks are selling in the market for $24 and $130 a share respectively, and they are expected to pay a dividend of $1.50 and $4.50, respectively, in one year. The company’s dividends are expected to grow at 5% per year. The firm would like to maintain the existing capital structure to finance the new project.
 

 

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4.A corporate bond for Chase Corp. has a face value of $1,000 and an annual coupon interest rate of 6%. Interest is paid annually. 10 years of the life of the bond remain. The current market price of the bond is $1,198. To the nearest 1/100 0f 1 percent, what is the yield to maturity (YTM) of the bond today?
 
5.i) Kennebunkport Manufacturing is expected to pay a dividend of $4 per share next year.  The dividend growth rate is expected to continue to be 3%. Required rate of return is 7%. What should be the current market price per share?
 
ii)If you buy the stock in Kennebunkport Manufacturing (above) at $95 and the stock price grows at the expected rate, What would be your percent return after one year?
 
6.On October 15, 2015, A common stock of Nasson Co. sells for $42 per share, has a growth rate of 5% and a dividend that was just paid of $1.84
in December 2012. What is the annual percent yield per share?
 
7.A corporate bond for the Maryland Company, LTD has a face value of $1,000 and an annual coupon interest rate of 5%. Interest is paid annually. 12 years of the life of the bond remain. The current market price of the bond is $1,112, and it will mature at $1,000. To the 1/100percent, what is the yield to maturity (YTM) of the bond today?

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