Answered: Imagine yourself as a financial manager…

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 2FPE: An investor is thinking about buying some shares of Health Diagnostics, Inc., at $75 a share. She...

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Imagine yourself as a financial manager in a company, and you are requested to provide a financial report including the calculation of the current market rate of return from the investor's perspective for each of the four investment options, taking into consideration the followings:

Common stocks available for investment are:

2,500,000 shares of common stock, with a par balance of $1 per share.

The current market value of the common share is $24.43 per share.

Annual earnings per share $1.95.

Bonds available for investment

$1,750,000 bonds (A) with an interest of 6.25%, with a current market value of $104 per bond (price of $104 per $100).

$2,250,000 Notes B, with an interest rate of 5.75%, with a current market value of $94.50 (price $94.50 per $100 note).

The corporate tax rate is 35%.

Preferred shares available for investment

950,000 outstanding preferred shares with a par value of $10 with a preferential dividend payment set at 5%. The current market value is $15.63 per Preferred Share

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