Determine the value of each investment

Assignment Help Finance Basics
Reference no: EM1351148

CBS bond with a par value of $1,000, an interest rate of 7.625 percent, and a maturity of 10 years The bond is selling for $986.

Alabama Power Company preferred stock with a $50 par value and a dividend of $2.8125 per 61 year. The stock is currently trading at $39 per share.

Emerson Electric common stock that is selling for $80 with a par value of $5. This stock recently paid a $2.50 dividend, and the firm's earnings per share have increased from $2.40 to $4.48 in the past 5 years. An equivalent amount of growth in the dividend is expected.

Your required rates of return for these investments are 6 percent for the bond, 7 percent for the preferred stock, and 15 percent for the common stock. Using this information, answer the following questions:

a. Calculate the value of each investment based on your required rate of return.
b. Which investment would you select? Why?
c. Assume Emerson Electrics managers expect an earnings downturn and a resulting decreases in growth of 3 percent. How does this affect your answers to parts 1 and 2?
d. What required rates of return would make you indifferent to all three options?

 

Reference no: EM1351148

Questions Cloud

Illustrate the effects of capital formation by comparing : illustrate the effects of capital formation by comparing the production possiblility curves at the present time and ten years in the future.
Example of sociodramatic play : Describe an example of sociodramatic play between an adult and a three-year-old. Explain how this interaction can lead to changes in the naïve psychology of the three-year-old.
Determine the other force and write it in component : compute the force exerted by the man, the work done by the man on the piano, the work done by the friction force, the work done by the force of gravity, and the net work done on the piano.
What level of man-hours will maximize total output : illustrate the effect of capital formation by comparing the product posibility curves,at the present time and ten years in the future for two economies,one with a high and the other with a lowrate of capital formation.
Determine the value of each investment : CBS bond with a par value of $1,000, an interest rate of 7.625%, and a maturity of ten years The bond is selling for $986. Determine the value of each investment based on your required rate of return.
Erikson stages influence personality development : How does movement through Erikson's stages influence personality development? Again, be specific.
Explain the appraisal is most accurate on the day of the : Explain The appraisal is most accurate on the day of the closing and Using traditional appraisal techniques, appraised value is a reconciliation of three preliminary estimates of value
What is the frequency of the first overtone : A 165 pF capacitor is connected in series with an unknown capacitor, and as a series combination they are connected to a battery with emf of 21.3 V. If the 165 pF capacitor stores 112 pC of charge on its plates, what is the unknown capacitance.
Find company cost of capital : A firm is 40% financed by risk-free debt. The interest rate is 10 percent, the expected market risk premium is 8 percent, and the beta of the company's stock is .5.

Reviews

Write a Review

Finance Basics Questions & Answers

  Declaration of dividend and payment of dividend

Journal entries to record issuance of stock, declaration of dividend and payment of dividend - Write journal entries to show the effect of issuance of common stock and preferred stock on January 1, 2008.

  Finance-bond pricing

Compute the duration of this bond and use it to estimate the new value of the bond if rates were to suddenly decline by 0.80%. Calculate the bond's value directly (using the present value approach) assuming that rates declined 0.80% from the yield t..

  Comparing target and wal-mart financially

Find out two publicly traded companies and compare and contrast them financially. This must include analysis, liquidity, asset management, financial leverage, profitability and market value. Describe your findings.

  Effective interest rate on foreign loan

Swenser Corporation arranged a two-year, $1,000,000 loan to fund the foreign project. The loan is denominated in Mexican Pesos, carries 10% nominal rate, and requires equal semi-annual payments. The exchange rate at the time of loan was 5.75 pesos..

  Determine the value of a share of common stock

What is the value of a share of common stock that paid $2.00 last year, the growth rate is 8 percent, suppose the risk free rate is 4 percent, the market return is 10% and the Beta is 1.5.

  Information about financial planning

Design a financial plan for them. How much would be their initial deposit? Would you use simple or compound interest? Would you compound the interest annually or monthly?

  Using straight line method to solve problem

DNA Corporation issued $4,000,000 in 8%, 10-year bonds on February 1, 2010, at 115. Semiannual interest payment dates are January 31 & July 31.

  Calculate value of duration

Compute the value of duration for a 4-year, $1,000 par value U.S. Government bond purchased today at a yield to maturity of 15%. The bond coupon rate is 12 percent and it pays interest once a year at year end.

  How to finding the price of the bond

How to Finding the price of the bond of the Mangold Corporation has two different bonds currently outstanding

  Objective questions on equity multiplier ratio

Objective questions on equity multiplier ratio and common size income statement

  Demand function has a negative slope

Over the past twenty years, the number of small family farms has fallen significantly also in their place there are fewer, but larger, farms owned by corporation.

  Discuss the risk of dell company

Discuss the risk of Dell  company.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd