Rose Gardens is looking into investing opportunities. The following are potential opportunities: Zipliners R Us is a fairly new business with a market price of $30 and Rose Gardens anticipates that their dividends will grow at a rate of 3% for the foreseeable future. The next dividend is expected to be $1.50. RBC Royal Bank is issuing bonds at a selling price of $950. The par value of the bond is $1,000 and RBC is offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Massy Ltd on the other hand is a matured company so their dividend has not changed in years. Their last dividends paid was $2.00. Massy Ltd. stock is currently being sold at $30. Microsoft Inc.is currently being sold at $235.75 per share. Rose Gardens found out that last year they paid dividends of $1.44 and they anticipate that the dividends would grow at a rate of 8% for years 1 & 2, then it would increase to 10% in years 3 & 4 and finally level off thereafter with a growth rate of 5% until infinity. After calculating the value of each of these securities, recommend to Rose Gardens which investment will make the most sense if they have $50,000 to invest and the expected rate of return for all securities mentioned above is 7%. Make sure to support your answer with workings and explanations.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Rose Gardens is looking into investing opportunities. The following are potential opportunities:
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Zipliners R Us is a fairly new business with a market price of $30 and Rose Gardens anticipates that their dividends will grow at a rate of 3% for the foreseeable future. The next dividend is expected to be $1.50.
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RBC Royal Bank is issuing bonds at a selling price of $950. The par
value of the bond is $1,000 and RBC is offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. -
Massy Ltd on the other hand is a matured company so their dividend has not changed in years. Their last dividends paid was $2.00. Massy Ltd. stock is currently being sold at $30.
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Microsoft Inc.is currently being sold at $235.75 per share. Rose Gardens found out that last year they paid dividends of $1.44 and they anticipate that the dividends would grow at a rate of 8% for years 1 & 2, then it would increase to 10% in years 3 & 4 and finally level off thereafter with a growth rate of 5% until infinity.
After calculating the value of each of these securities, recommend to Rose Gardens which investment will make the most sense if they have $50,000 to invest and the expected
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