To finance a new line of product, Larissa Toys has issued a bond with a par value of $1,000, coupon rate of 8 percent, and maturity of 30 years. Compute the price of the bond if the required return on the bond is 10% and interest is paid annually. Compute the price of the bond if the required return on the bond is 10% and interest is paid semi-annually. Iris Corp issued bonds with a coupon rate of 15%, pay coupons annually, have 6 years remaining to maturity, and are currently priced at $950 per bond. What is the yield to maturity? Compute the value of a share of common stock of Lara’s Cookie Company whose most recent dividend was $3.50 and is expected to grow at 2 percent per year for the next 5 years, after which the dividend growth rate will increase to 5 percent per year indefinitely. Assume a 12 percent required rate of return. Marshall Law firm expects to generate free-cash flows of $200,000 per year for the next five years. Beyond that time, free cash flows are expected to grow at a constant rate of 5 % per year forever. If the firm's weighted average cost of capital is 15 %, the market value of the firm's debt is $500,000, the market value of its preferred stock is $200,000 and the firm has a half million shares of common stock outstanding, what is the value of its common stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 17P

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To finance a new line of product, Larissa Toys has issued a bond with a par value of $1,000, coupon rate of 8 percent, and maturity of 30 years.

Compute the price of the bond if the required return on the bond is 10% and interest is paid annually.
Compute the price of the bond if the required return on the bond is 10% and interest is paid semi-annually.
Iris Corp issued bonds with a coupon rate of 15%, pay coupons annually, have 6 years remaining to maturity, and are currently priced at $950 per bond. What is the yield to maturity?
Compute the value of a share of common stock of Lara’s Cookie Company whose most recent dividend was $3.50 and is expected to grow at 2 percent per year for the next 5 years, after which the dividend growth rate will increase to 5 percent per year indefinitely. Assume a 12 percent required rate of return.
Marshall Law firm expects to generate free-cash flows of $200,000 per year for the next five years. Beyond that time, free cash flows are expected to grow at a constant rate of 5 % per year forever. If the firm's weighted average cost of capital is 15 %, the market value of the firm's debt is $500,000, the market value of its preferred stock is $200,000 and the firm has a half million shares of common stock outstanding, what is the value of its common stock?

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