Problem
I. Imagine that you invest in a current bond with an annual coupon of 6% and a maturity remaining 10 years. The bond has a face value of $900 and an interest rate of 8% market. Determine the payment you should make for the bond.
II. Mobile Motors Inc. bonds have 12 years remaining to maturity. The interest will paid annually, has a face value of $2,000, coupon interest rate is 7% and an 11% yield to maturity. Determine the current price of the bond in the market.
III. Cassidy Industries' outstanding bonds have a face value of $800, a coupon semi-annual of 8%, 12 years to maturity and a YTM of 10%. Determine the price of bond.
IV. Suppose a bond has a face value of $3,000, 10 years to maturity, a coupon 7% annual and sells for $2,800. Calculate Yield to Maturity (YTM). Calculate the price 4 years from now, assuming the yield to maturity holds constant.
V. Suppose Roberto is considering a 12-year bond with a face value of $2,000 and an 8% rate payable semi-annually. Calculate the payment that Roberto would have to make if he required an "effective" annual interest rate of 8.2%.
VI. River Industries Company paid $2.00 in dividends per share. It is expected that the dividend increase 10% annually for the next 4 years and 6% in the years remaining. Calculate the expected dividend per share for each of the 6 years.
VII. Corner Company is estimated to generate $18 million in free cash flow during the first year, and it is expected to grow at a constant rate of 5% per year. The The firm has no debt or preferred stock, and its weighted average cost of capital (WACC) is 9%. Calculate the value per share, considering that the company has $32 million in outstanding shares.
VIII. Calculate the nominal rate of return of a perpetual preferred stock with value face value of $200, a dividend of 9% of face value, and a current market price of $100.
IX. Rome Corporation invests in the research and development department and will not pay dividends for the next few years. The company Venetian Industries is interested in acquire shares of Rome Corporation. The CEO of Venetian has estimated the flows of Rome's available cash for the next 3 years: $7 million, $9 million and $12 millions. After the third year, free cash flow is expected to grow by 5% constantly. Rome's Weighted Average Cost of Capital (WACC) Corporation is 7%, the market value of its debt and preferred stock reach a total of $60 million. Rome Corporation has $22 million of non-financial assets. Operations and 9 million common shares outstanding.
i. Calculates the present value of the expected available cash flows for the next 3 years.
ii. Determine the market value of the operations of Rome Corporation.
iii. Find an estimate of the price per share of Rome Corporation.