Question 1. Valuing a bond and valuing a stock:
a. Bond valuation-what is the PV or the appropriate selling price of a 30 year bond which has a 10% coupon, paid annually, and has a 10 years till maturity, during a time when market interest rates are 5%
b. Using the dividend discount model determine the appropriate market price for a share of the XYZ company when:
i. Its expected next dividend is $1.00
ii. Its recent dividend growth rate is 5%
iii. The prevailing discount rate is 7%
Question 2. Determining present and future values:
c. What is the PV of $1000 received 10 years from now if your personal investment track record reaps a 10% return
d. What is the future value, 5 years from now, of $100 invested at 3% today
Question 3. Capital project analysis:
Project A costs $10,000 and saves $2000 in each of 6 years. What is the NPV of investing in this project if the discount rate of your company is
e. 2%....if its
f. 10%
g. for the very same information, what's the simple payback for project A
Question 4. WACC:
h. in laymans terms what is WACC; why is it important to a company
i. calculate this firms WACC, when common stockholders expect a 10% return, and they represent 33% ownership in the company, preferred stock was issued at 6%, and this represents 33% of the firms value, and bonds outstanding, issued at 8% represent 33% of the firms value; their tax rate is 40%.