What should be the price of one share of firm A stock

Assignment Help Financial Accounting
Reference no: EM132916202

Question - Firm A has issued a total of 2 million corporate bonds with a maturity of 10 years and a coupon rate of 5 percent. Coupon payments occur once per year, and the face value of firm A's bonds is $1,000. The current market price for one of the bonds issued by firm A is $830.

Firm A plans to issue 8 million equity shares to be traded on public exchanges. Each share is expected to pay a $9 cash dividend after one year, and the firm's CFO forecasts earnings per share of $24 for the year ahead. Firm A's return on equity is 16 percent. Under these conditions, the beta of firm A's common stock is estimated at -0.1, and the beta of firm A's assets is estimated at 0.5.

1. What should be the price of one share of firm A's stock?

2. Firm A's CFO suggests to issue another 1 million corporate bonds in addition to the 2 million already issued at the same market price of $830. What effect would this have on the IPO price of firm A's stock?

Reference no: EM132916202

Questions Cloud

FIN501 Fundamentals of Finance Assignment : FIN501 Fundamentals of Finance Assignment Help and Solution, Fiji National University - Assessment Writing Service
What will the ex-dividend stock price be : What will the ex-dividend stock price be if the relevant tax rate is 21 percent and all else is held constant? Breakers Engineering is preparing to pay.
How many shares will be outstanding : B&K Lumber has 50,600 shares of stock outstanding at a price per share of $68. How many shares will be outstanding if the firm does a 5-for-2 stock split?
What is the optimal order quantity for MBC : The cost of holding a gallon of fuel in the storage tanks is $0.04 per month, or $0.48 per year; What is the optimal order quantity for MBC
What should be the price of one share of firm A stock : Coupon payments occur once per year, and the face value of firm A's bonds is $1,000. What should be the price of one share of firm A stock
How an organization gains a competitive advantage : Determine organizational risk and growth opportunities in order to develop a strategic plan. how an organization gains a competitive advantage
How would convert the businessweaknesses into strengths : How would convert the businessweaknesses into strengths. Explain how you would match the business's strengths to its opportunities.
How many items of each should be produced : The market price are given by p1=100-2x1 and p2=125-3x2. Find how many items of each should be produced to have the joint profit maximum.
What the gain on restructuring on December : The unpaid interest on the restructured loan at this time is P750,000. (Round off PV Factor to two decimal places) What the gain on restructuring on December

Reviews

Write a Review

Financial Accounting Questions & Answers

  State at least four types of revenue

State at least four types of revenue that Samsung explained in the notes to financial statements

  Calculate the? firm weighted average cost of capital

Calculate the? firm's weighted average cost of capital where the? firm's borrowing rate on debt is 8.6 ?percent, it faces a 35 percent tax? rate

  Analyze the major benefits and major weaknesses

Analyze the major benefits and major weaknesses of traditional Activity-Based Costing (ABC) in determining accurate overhead costs over a time-driven ABC system

  Find the one for the last interest payment

Assume you have the long GBP position, Find the, one for last interest payment and one for the principal payment. Recall, you took a long position in the swap.

  List five factors implementing internationally uniform set

List at least the five factors you think would work against implementing internationally uniform set of accounting standards? International Accounting Standards

  Two production departments

Dean Corporation has two service departments, Power and Maintenance, and two production departments, Painting and Polishing. The following data have been estimated for next year's operations:

  Should management continue with the initial public offering

If XYZ management is hoping for the initial share price to be $35, should management continue with the initial public offering

  Margin of safety percentage-break-even point

James Company has a margin of safety percentage of 20%. The break-even point is $220,000 and the variable costs are 40% of sales. Given this information, the operating profit is:

  Reason for the joint project undertaken by the fasb and iasb

What are the roles and objective of FASB and IASB and what are the main reason for the joint project undertaken by the FASB and IASB?

  What is impact of dollar amount of dividend on binomial tree

What is the impact of specific dollar amount of dividend on the binomial tree? What is (are) disadvantage(s) of resulting tree. How do get around this problem.

  Find which of the statements is correct for hkt co

Find Which of the statements is correct for HKT Co? HKT Co. produces and sells two products, A and B. Revenue and cost data are shown

  Determine if each expense is revenue

Examine this list and determine if each expense is revenue or capital expenditure. Provide a short explanation for your choice. Capital & Revenue Expenditure

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