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    Stock and Bond Valuation, Time Value of Money, WACC

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    1. Valuing a bond and valuing a stock:
    a. Bond valuation-what is the PV or the appropriate selling price of a 30 year bond which has a 10% coupon, paid annually, and has a 10 years till maturity, during a time when market interest rates are 5%
    b. Using the dividend discount model determine the appropriate market price for a share of the XYZ company when:
    i. Its expected next dividend is $1.00
    ii. Its recent dividend growth rate is 5%
    iii. The prevailing discount rate is 7%

    2. Determining present and future values:
    c. What is the PV of $1000 received 10 years from now if your personal investment track record reaps a 10% return
    d. What is the future value, 5 years from now, of $100 invested at 3% today

    3. Capital project analysis:
    Project A costs $10,000 and saves $2000 in each of 6 years. What is the NPV of investing in this project if the discount rate of your company is
    e. 2%....if its
    f. 10%
    g. for the very same information, what's the simple payback for project A

    4. WACC:
    h. in laymans terms what is WACC; why is it important to a company
    i. calculate this firms WACC, when common stockholders expect a 10% return, and they represent 33% ownership in the company, preferred stock was issued at 6%, and this represents 33% of the firms value, and bonds outstanding, issued at 8% represent 33% of the firms value; their tax rate is 40%.

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    https://brainmass.com/business/bond-valuation/stock-bond-valuation-time-value-money-wacc-104671

    Solution Preview

    See the attached file.

    Note: The abbreviations have the following meanings

    PVIF= Present Value Interest Factor
    PVIFA= Present Value Interest Factor for an Annuity
    FVIF= Future Value Interest Factor
    FVIFA= Future Value Interest Factor for an Annuity

    They can be read from tables or calculated using the following equations
    PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
    PVIF( n, r%)= =1/(1+r%)^n
    FVIF( n, r%)= =(1+r%)^n
    FVIFA( n, r%)= =[(1+r%)^n -1]/r%

    1. Valuing a bond and valuing a stock

    a. Bond valuation-what is the PV or the appropriate selling price of a 30 year bond which has a 10% coupon, paid annually, and has a 10 years till  maturity, during a time when market interest rates are 5%

    To calculate the price of the bond we need to calculate / read from tables the values of
    PVIF= Present Value Interest Factor
    PVIFA= Present Value Interest Factor for an Annuity
    Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

    PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
    PVIF( n, r%)= =1/(1+r%)^n

    Price of bond
    Coupon rate= 10.000%
    Face value= $1,000
    Interest payment per year= $100.00 =10.% x 1000

    Frequency= A Annual

    No of years to maturity= 10
    No of Periods=n= 10 =1 x 10

    Discount rate annually= 5.00% Annual
    Discount rate per period=r= 5.00% =5.%/1

    Price of bond=PVIFA X Interest Payment per period +PVIF X Redemption value

    Interest payment per period= $100.00 =100/1
    Redemption value= $1,000 =Face ...

    Solution Summary

    The solution answers questions on stock and bond valuation, time value of money, and WACC.

    $2.19