What is the value of investment

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Rob wants to start his own restaurant company. He wants to finance the company using debt, preferred stocks, and common stocks. He has decided to set up his capital structure with 40% debt, 5% preferred stocks, and 55% common stocks. Market statistics: the risk-free rate is 2% and the market rate is 8%.

1. Suppose a bond pays $180 at the end of each year forever. If 8% is the relevant interest rate, what is the value of this investment to you today?

Bond Price=

2. Rob wants to sell preferred stocks on the NYSE. His expected dividend is $1.50, and the required rate of return on the stock is 8%. At what price should Rob sell his preferred stock?

Preferred stock price =

3. Rob also wants to issue common stocks with a beta of 1.4. His projected dividend is $0.87, and the growth rate of his company is projected at 15%. At what price should he sell his stocks?

Rs (required rate of return) =

Common stock price =

Reference no: EM132722609

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