## FIN501 Case Module 2

FIN501 Case Module 2 in \$21 Only

Stocks and Bonds

Case Assignment

Stock Valuation

Mr. Hillbrandt is impressed with your ability to explain financial concepts so he asks for help with learning about stock valuation. Mr. Hillbrandt really liked the examples you provided last time (module 1), so it seems as if you need to sit down and create some relevant examples for this topic too. Below is some information that helps you brush up on the topic. Read this article related to the intrinsic value of stock, paying special attention to the section entitled “Constant Growth Model”:

Alvarez, S. (2015). What is the intrinsic value of stock?

## FIN 571 Week 5 Individual Assignment Text Problem Sets

FIN571 Week 5 Individual Assignment Text Problem Sets

A1. (Bond valuation) A \$1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?

A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of \$5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?

A12. (Required return for a preferred stock) James River \$3.38 preferred is selling for \$45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?

A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a \$1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth?

B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl’s bonds have identical coupon rates of 9.125% but that one issue matures in 1 year one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday.

a. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?

## Finance Questions I

Finance Questions I

1. If you invest \$2,000 a year in a retirement account, how much will you have in 40 years at 12%?
2. There is a stock that pays dividends of \$2.00 at the end of 1st yr, \$2.20 at the end of 2nd yr, and \$2.40 at the end of 3rd yr.  At the end of 3rd yr the stock will sell for \$33.00  what is the present value of all future benefits if a discount rate of 11% is applied?
3. \$1,000 par value bonds are outstanding at 8% interest.  The bonds mature in 25 yrs.  What is the current price of the bonds if the present yield to maturity is 13%?
4. Preferred stock is issued at a fixed dividend of \$6 per share.  With time yields have soared to 14%.
5. If the yield on the S&P preferred stock index declines, how will the price of the preferred stock be affected?

Price of Answer: Just US\$5 only

Need Assistance…??  email us at care@solvemyquestion.com.

If you need any type of help regarding Homework, Assignments, Projects, Case study, Essay writing or any thing else then just email us at question@solvemyquestion.com.  We will get back to you ASAP. Do not forget to maintain the time frame you need you work to be done.

## Finance Questions

Finance Questions Answers in \$9 only

Question 1

Lump sum issuance of stock.

Landon Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of \$72,000 cash.

Instructions

(a)          Give the entry for the issuance assuming the par value of the common was \$5 and the market value \$30, and the par value of the preferred was \$40 and the market value \$50. (Each valuation is on a per share basis and there are ready markets for each stock.)

(b)          Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a market value of \$25 per share.

Question 2

Treasury stock.

For numerous reasons, a corporation may reacquire shares of its own capital stock. When a company purchases treasury stock, it usually accounts for the stock using the cost method.

Instructions

Explain how a company would account for each of the following:

1. Purchase of shares at a price less than par value.

2. Subsequent resale of treasury shares at a price less than purchase price, but more than par value.

3. Subsequent resale of treasury shares at a price greater than both purchase price and par value.

4. Effect on net income.

Question 3

Dividends on preferred stock.

The stockholders’ equity section of Knott Corporation shows the following on December 31, 2007:

 Preferred stock—6%, \$100 par, 4,000 shares outstanding \$   400,000 Common stock—\$10 par, 60,000 shares outstanding \$  600,000 Paid-in capital in excess of par \$  200,000 Retained earnings \$  114,000 Total stockholders’ equity \$ 1,314,000

instructions

Assuming that all of the company’s retained earnings are to be paid out in dividends on 12/31/07 and that preferred dividends were last paid on 12/31/05, show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.

Question 4

(EPS with Convertible Bonds and Preferred Stock)

On January 1, 2007, Crocker Company issued 10-year, \$2,400,000 face value, 10% bonds, at par. Each \$1,000 bond is convertible into 16 shares of Crocker common stock. Crocker’s net income in 2007 was \$300,000, and its tax rate was 40%. The company had 100,000 shares of common stock outstanding throughout 2007. None of the bonds were converted in 2007.

Instructions

(Round answers to 2 decimal places.)

a.)    Compute diluted earnings per share for 2007.

b.)    compute diluted earnings per share for 2007 using the same facts as those assumed for part (a), except that \$1,200,000 of 10% convertible preferred stock was issued instead of the bonds. Each \$100 preferred share is convertible into 7 shares of Crocker common stock.

Question 5

Basic and diluted EPS.

The following information was taken from the books and records of Simonic, Inc.:

Instructions

Compute basic and diluted earnings per share.