Explore BrainMass

Explore BrainMass

    Discount Rates & Present Value

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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

    © BrainMass Inc. brainmass.com June 4, 2020, 3:36 am ad1c9bdddf

    Solution Preview

    We have,

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