Rollinsford Company Finance Assignment Help With Solution

Posted on March 10, 2017

Rollinsford Company Finance Assignment Help With Solution

 
1. The corporate treasurer of Rollinsford Company expects the company to grow at 3% in the future, and debt securities at 4% interest (tax rate = 35%) to be a cheaper option to finance the growth. The current market price per share of its common stock is $39, and the expected dividend in one year is $1.50 per share. Calculate the cost of the company’s retained earnings and check if the treasurer’s assumption is correct.
 
2.(a)
The risk-free rate on 30 year U.S. Treasury bonds is 3.25% and the expected rate of return on the overall stock market is 12%. The company has a beta of 1.6. What is the cost of equity?
 
(b)Less 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 1.6. What is the cost of equity?
 

3 A company, West Berwick Enterprises, has a capital structure as follows:
 
Total Capital $1,000,000
Debt $400,000
Preferred Stock $100,000
Common Equity $500,000

 
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 7%, 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 $26 and $143 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 7% per year. The firm would like to maintain the existing capital structure to finance the new project.
 
4. West Berwick is considering two projects for a new investment, but it can afford only one. It has determined that the appropriate discount rate is 7.39%. Please answer the following questions based on the data below:

Net Cash Flow
Year Project A Project B
0 -$4,000,000 -$5,000,000
1 $800,000 $1,900,000
2 $1,000,000 $1,700,000
3 $1,200,000 $1,400,000
4 $1,400,000 $900,000
5 $1,600,000 $300,000

 
4-A Calculate the payback period for each project
 
B Calculate the net present value for each project.
 
4-C Which project do you think will be approved, if only one project can be approved? Why?
 
D What if the required rate of return was 10%?
 
E What is the Internal rate of return?
 

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5. A corporate bond has a face value of $1,000 and an annual coupon interest rate of 7%. Interest is paid annually. 10 years of the life of the bond remain. The current market price of the bond is $1232. To the nearest 1/100 0f 1 percent, what is the yield to maturity (YTM) of the bond
 
6. Kennebunk Manufacturing is expected to pay a dividend of $8 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?
 
b.If you buy the stock in Kennebunk (above) at $185 and the stock price grows at the expected rate, What would be your percent return after one year?
 
7. On January 15, 2013, A common stock sells for $82 per share, has a growth rate of 7% and a dividend that was just paid of $3.82 in December 2012. What is the annual percent yield per share?
 
8. A corporate bond has a face value of $1,000 and an annual coupon interest rate of 6%. Interest is paid annually. 12 years of the life of the bond remain. The current market price of the bond is $1,127, and it will mature at $1,000. To the 1/10 percent, what is the yield to maturity (YTM) of the bond today?
 
 

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