Rondo Common Stock
Rondo Debt (Bank Loan and Mortgage Bond)
In my mind, this is the core topic in financial analysis / valuation. The value of an asset, any asset, is the present value of its projected (future) earnings. Simple enough, huh? The key word here is projected. That is the word that makes finance an art, not a science. All of the math is based on projections, which are based on subjective assumptions.
Let's begin with the time value of money. A dollar today is not the same as a dollar tomorrow. In finance, we think in present value dollars. We project future cash flows and discount them back to the present. We then compare the discounted dollars with the initial investment. Future cash flows are discounted at a specified interest rate. The greater the rate, the lower the present value. Time value is based on four basic algebraic expressions...
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The solution explains how to calculate the value of common stock, bank loan and mortgage bond for Rondo Company