Computing the present value of debt security

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Reference no: EM132046331

Please write caluclations as well, to know how you got the answer. If your using calculator please mention which buttons on the financial calculator.

1.I) Computing the Present Value of a Debt Security

Compute the present value of a three-year bond with a face value of $5,000, and 8% annual coupon payment, and a 9% effective rate.

II) Estimating Cost of Equity Capital

Assume that the company’s market beta equals -0.8, that the risk-free rate is 5%, and the market return equals 8%. Compute the company’s cost of equity capital.

III) Estimating Cost of Debt Capital

Assume that the company’s financial statements report that its average outstanding debt totals $1.6 billion, and its total interest expense equals $80 million. If its tax rate is 35%, compute its cost of debt capital.

IV) Estimating Weighted Average Cost of Capital

Assume that a company has $1 billion in preferred stock and $3 billion in common stock. Also, it pays 6% dividend on preferred stock and its cost of equity capital is 7%. The company has no debt, Compute the company’s WACC.

V) Applying DDM with Constant Perpetuity

Assume that a company’s dividends per share are projected to remain at $1.1 in perpetuity, and that its per share stock price is $22. Estimated the company’s cost of equity capital.

VI) Estimating Company Value Using DDM with Increasing Perpetuity

Assume that a company paid $1.2 dividend per common share, its dividend per share is expected to grow at a constant rate of 2%, and its cost of equity capital is 5%. Estimate the company’s per share stock price.

Reference no: EM132046331

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