Expected for the indefinite future

Assignment Help Finance Basics
Reference no: EM132529025

- You are considering three investments. The first is a bond that is selling in the market at $1 200. The bond has a $1 000 par value, pays interest at 8% and is scheduled to mature in 10 years. For bonds of this risk class you believe that a 9% rate of return should be required.

The second investment that you are analyzing is a preferred stock ($125 par value) that sells for $120 and pays an annual dividend of $18. Your required rate of return for this stock is 16%.

The last investment is a common stock that recently paid a $2 dividend. The firm expects to pay a dividend of $2.18 at year end and this growth in dividends per share is expected for the indefinite future. The stock is selling for $20 and you think a reasonable required rate of return for the stock is 20%.

a. Calculate for each security

i. Expected rate of return

ii. The current value based on your required rate of return

b. Which of the investment(s) should you accept? Why?

Reference no: EM132529025

Questions Cloud

Describe the venture capital process : Describe the venture capital process?
What the incremental cost will be : If Bluebird accepts this additional business, the incremental cost will be? Bluebird Mfg. has received a special one-time order for 15,000 bird feeders
Primary competitor paid : The concept of marginal taxation is best exemplified by which one of the following?
Cumulative preferred stock dividends : Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends.
Expected for the indefinite future : You are considering three investments. The first is a bond that is selling in the market at $1 200. The bond has a $1 000 par value, pays interest
Should the company accept the special order : Management expects no other changes in costs as a result of the additional production. Should the company accept the special order?
Describe the functional analysis procedure you would use : Design the functional analysis conditions. Describe the functional analysis procedure you would use to test your hypothesis about the behavior's function.
What will be the internal rate of return of the project : Are there some practical difficulties you will encounter when making such capital budgeting decisions? What will be the internal rate of return of this project
Project plan for new internal support system : how balance sheets, income statements, and cash flow statements would be used as inputs to diagnose performance of project and determine shareholder value.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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