1. Assume a corporation is expecting the following cash flows in the future: $-6 million in year 1, $8 million in year 2, $19 million in year 3. After year 3, the cash flows are expected to grow at a rate of 4% forever. The discount rate is 8%, the firm has debt totaling $55 million, and 9 million shares outstanding. What should be the price per share for this company?
1a. As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 12 years, the coupon rate is 4% paid semiannually, and the discount rate is 10%. What is the estimated value of this bond today?
1b. As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 28 years, the coupon rate is 10% paid annually, and the discount rate is 16%. What is this bond's coupon payment?
1c. Assume that as an investor, you decide to invest part of your wealth in a risky asset that has an expected return of 22%, and a standard deviation of 12%. You invest the rest of your capital in the risk-free rate, which offers a return of 5%. You want the resulting portfolio to have an expected return of 6%. What percentage of your capital should you invest in the risky asset?