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# Stocks and Bonds

(See attached file for full problem description)
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1. Aero Company currently has net income of \$3 million and 1. million common shares outstanding which sell for \$20 per share. Aero has decided to issue new stock to raise \$4,000,000 to expand its operations. Aero's investment banker will sell the new shares for \$18 per share with a spread of 7%. There will be a \$60,000 registration cost.
a. Calculate the current EPS and PE ratio.
b. How many shares will have to be sold to net the \$4,000,000 that Aero needs?
a)

a) Calulate the current EPS and PE ratio.

EPS= net income / Outstanding shares
3,000,000 / 1,000,000 = 3

PE ratio = Market value / Earning per share

20*1,000,000 / 3

b) 4,000,000 + 60,000 = 4060,000/18=225556 shares

2. PG Corp has a bond outstanding with a par value of \$1,000, an annual interest payment of \$110, a market price of \$1,200, and a maturity in 10 years. Determine the following:
a. Coupon rate
b. Current yield
c. Approximate yield to maturity

3. The stockholders' equity portion of the balance sheet of Rollover Tire Company is as follows:
Common Stock (2,000,000 shares at \$10 par) \$20,000,000
Paid-in-Capital in Excess of Par 17,000,000
Retained Earnings 33,000,000
\$70,000,000
The current market value of Rollover stock is \$20 per share. Show what the balance sheet would look like if Rollover declares a 10% stock dividend.
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(See attached file for full problem description)

#### Solution Summary

The solution contains a word document as well as an excel file that show step by step how to calculate EPS, PE Ratio, as well as a bond's Coupon rate, Current yield, Approximate yield to maturity.

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