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?
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.
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
Yield on a High Yield US corporate bond=1.83% (Source: Bloomberg.com)
Par Value on bond=$1,000
Market price of the ...
The discount rates and present values are examined. The expert determines the discount rate given financial stats for both companies.
Compute the present value of this stream of income at a discount rate of 8%. Compare the present values of the income stream under the three discount rates.
Suppose you just inherited a gold mine. This gold mine is believed to have three years worth of gold deposit. Here is how much income this gold mine is projected to bring you each year for the next three years:
Year 1: $42,000,000
Year 2: $62,000,000
Year 3: $99,000,000
Compute the present value of this stream of income at a discount rate of 8%. Remember, you are calculating the present value for a whole stream of income, i.e. the total value of receiving all three payments (how much you would pay right now to receive these three payments in the future). Your answer should be one number - the present value for this oil well at a 8% discount rate but you have to show how you got to this number.
Now compute the present value of the income stream from the gold mine at a discount rate of 6%, and at a discount rate of 4%. Compare the present values of the income stream under the three discount rates.