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Discount Rates & Present Value

Lockheed Martin and CACI International want to sell me a bond that will pay me $100,000 in one year.
1. Using the concept of present value and considering the risk of inflation, high interest rates, etc. what would I pay for this bond today?
2. How would I determine the discount rate given the following financial stats for both companies? If I would pay more than $100,000 for Lockheed Martin how would I calculate that and why?
Lockheed Martin
BETA 0.65
Current Ratio: 1.25.
Current debt/equity: 267.16
Short Ratio: 4.00
Profit Margin 6.05%
Return on Assets: 6.76%
Return on Equity: 106.74
Cash Flow: operating: 3.96B - levered free:2.37B
CACI International Inc.
BETA: 1.38
Current Ratio: 1.53
Total debt/equity: 62.17
Short Ratio: 11.80
Profit Margin: 4.26%
Return on Assets: 7.61%
Return on Equity: 14.52%
Cash Flow: operating: 278.26M - levered free 223.62M

Solution Preview

Answer:
We have,

Yield on a High Yield US corporate bond=1.83% (Source: Bloomberg.com)
Par Value on bond=$1,000
Hence,
Market price of the ...

Solution Summary

The discount rates and present values are examined. The expert determines the discount rate given financial stats for both companies.

$2.19