Bond / Stock Valuation And Cost Of Capital

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C. Bond/Stock Valuation and Cost of Capital Valuation: 1. Calculate yield to maturity (YTM) for your company’s bond, and explain why it differs from the YTM for the competitor company’s bond. Calculations: Calculator values/ Company Canadian Tire Sears Future Value $1000 $1000 Present Value $1073.6 $920 Payment $28.25 $920 Time to maturity (N) 1.166666 2.916 Yield to maturity (YTM) 3.26%*2= 6.52% 9.52% Canadian Tire’s bonds are mature on 26/01/2016 while Sears’s bonds are mature on 15/10/2018. Retaining the same year was our preference, but we were unable to ascertain the same year maturity for both companies. Higher the yield, more will investor’s interest. Because the investor like to interpret from the yield to maturity value that how much they will get in return on maturity, as there is a direct relationship between the yield of maturity and return from the bonds in the future. 2. Calculate the required rate of return for your company’s common stock (show breakdown), and explain why it differs from the competitor company’s rate of return. The required rate of return is the minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project. Investors use the RRR to decide where to invest their money. Kj = Rf + Bj (Rm-Rf) Canadian Tire Sears Real Rate of Return 0.27% 0.27% Inflation Premium 2% 2% Risk Free Rate 2.27% 2.27% Risk Premium 7.5% 7.5% Required Rate of Return 9.78% 9.78% Beta for
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