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Explain the bond and stock valuation

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Reference no: EM133072029

Bond/Stock Valuation

1. You're looking at two bonds identical in every way except for their coupons and, of course, their prices. Both have 12 years to maturity. The first bond has a 10 percent annual coupon rate and the second has a 12 percent annual coupon rate. The yield is at 11%, what bond
will sell at a premium?

2. You have been asked to determine the stock value for the Davies Corporation, a small computer supplies business. Given the following information, calculate the firm's stock value based on the free cash flow valuation approach.

The firm had sales last year of $2 M, and the owner expects sales to grow at 10% for 2 years and 4% thereafter.
The operating profit margin is expected to be 15% with a tax rate of 30%.
The firm has maintained a 45% asset-to-sales relationship, which should continue into the future.
The company has $500,000 in outstanding debt.
The firm's cost of capital is 12%
There are 150,000 shares outstanding.

Reference no: EM133072029

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