What is the projected stock price for the coming year

Assignment Help Financial Accounting
Reference no: EM133065110

Questions - Vitality Vancouver Inc. (VVI) has recently raised debt capital through long-term financing. The bond indenture includes issuing 8% coupon bonds on the market that are selling at $989, pay interest semi-annually, and mature in fifteen years. The company would like to issue additional $1 million in new fifteen-year bonds. VVI has another bond issue outstanding that pays a 7.5% coupon and matures in 14 years. The bond has a par value of $1,000 and a market price of $942.90. Interest is paid semiannually.

The company evaluates the potential of issuing a third bond that pays an annual coupon of $35, has a face value of $1,000, matures in seven years, and has a yield to maturity of 8%. As a result of the recent financing, the CFO of the company is concerned about protective covenants that could hamper the future risk-taking ability of the firm. In particular, the bondholders reserve the right to force the repayment of the bonds prior to the maturity. VVI is also experiencing rapid growth. Dividends are expected to grow at 20% per year during the next three years, 10% over the following year, and then 4% per year indefinitely. The required return on this stock is 10%.

The company is also considering the prospect to issue some preferred stock to alter the capital structure of the firm. It is however unsure about the main characteristics of the preferred stock which could cause some dilution to the existing capital structure due to similarity with another instrument. The CFO is also preparing for a meeting with the Board of Directors next week. While giving the final touches to the quarterly results, he realizes the board is likely to focus on the potential of dividend distribution to various classes of shareholders. The CFO has additionally prepared some notes regarding the voting structure of those classes of stocks. The company plans to improve the profitability and stock price related ratios because of the recent changes in the capital structure.

Required -

What coupon rate should be applied to the new bonds if VVI wants to sell them at par?

What is the yield to maturity on a 14-year bond?

What should be the price of the third bond being considered for an issue?

What is the projected stock price for the coming year, if VVI just paid a $2 dividend?

Assuming VVI's stock is currently selling for $51, the expected dividend one year from now is $1.50 and the required return is 10, what is the firm's dividend growth rate?

How would issuing the preferred stock affect the capital structure of the firm in comparison to the common stock?

Why is the dividend distribution and voting structure a matter of interest to the Vitality's board?

What recommendations would you make in improving the financial prospect of the company especially with respect to the relevant ratios?

Reference no: EM133065110

Questions Cloud

Asset price bubble and currency crisis : Explain the relationship between a bust in asset price bubble and currency crisis
Discriminate in popcorn and soft drinks : It is common for movie theaters to charge lower admissions for children than for adults, but the theaters do not charge children and adults different prices for
Describe company on global scale : Research and describe the company on a global scale. Articulate the companies strategy both in the United States and globally.
What is free and informed consent : What is free and informed consent from the Catholic perspective?
What is the projected stock price for the coming year : The bond has a par value of $1,000 and a market price of $942.90. What is projected stock price for coming year, if VVI just paid a $2 dividend
Menu of prices with different qualities : Suppose a firm can target two groups of consumers that can be perfectly identified by a menu of prices with different qualities but that the firm can also offer
Inverse demand curve for caps : The Key West Parrot Shop has a monopoly on the sale of parrot souvenir caps in Key West.
Discuss the interrelationship of the cash flow : Discuss the interrelationship of the cash flow statement to other financial statements including an explanation of operating activities, investing activities
Explain about proctor and gamble : Explain more about proctor and gamble's external stakeholders

Reviews

Write a Review

Financial Accounting Questions & Answers

  How much depreciation expense should be charged each year

Goodfellow's Floral Shop, Assuming Goodfellow's is using straight line depreciation, how much depreciation expense should be charged each year?

  What is the full remittance from the customer

The entity prepaid P100,000 of delivery cost for the customer as an accommodation. On June 11, 2020, what is the full remittance from the customer?

  Define and explain the bond demand and supply curves

Explain the concepts of financial markets, financial institutions, financial instruments, and risk. Define and explain the bond demand and supply curves

  Compute the realized rate of return for an investor

The Bonds had a 7% call premium, with 5 years of call protection. Today XYZ called the bonds. Compute the realized rate of return for an investor

  How long ago did she start this savings plan

For a long time Sally has been investing $7,000 at the end of every six months. How long ago did she start this savings plan

  What assumptions have you made about demand

Project the incremental, annual, and cumulative cash benefits and outflows associated with the proposed expansion for the next seven to 10 years, using a spreadsheet or other relevant presentation vehicle to support your narrative. For example, wh..

  Prepare entries on the books of franchisor for pancake house

Assume at March 15, 2019, the time of signing the contract, Prepare entries on the books of franchisor to record the above transactions.

  How should disney capture this transaction

Assume that Disney collects $5,300,000 for admission to Magic Kingdom on October 15. How should Disney capture this transaction in its October accounting record

  How much is allocated to grayson

How much is allocated to Grayson? If the corporation makes the short-year election, how much of the loss is allocated to Grayson? The tax year is not leap year.

  What is the amount citron should record for common shares

Citron Inc., a publicly accountable company, What is the amount Citron should record for common shares when the options are exercised on April 1, 20X7?

  Benefits the clients warrants the potential cost

From the e-Activity, recommend at least one improvement in the Website’s sales order process you would implement to make it more efficient in order to improve the customer experience. Then, assess whether the recommendation meant to benefits the clie..

  1 when canceling debt before its maturity debt retirement

1. when canceling debt before its maturity debt retirement it is theorized that the recall of the debt is a current

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