Valuation of Rondo's securities
Not what you're looking for?
Prepare a valuation of Rondo's securities using the methods demonstrated. You should value the existing mortgage bond, the required rate of return on equity securities using the CAPM model and the theoretical common stock price using the Gordon Dividend Constant Growth Stock Model. Please prepare a one-page executive summary analyzing your findings
Purchase this Solution
Solution Summary
The solution explains the valuation of Rondo's securities in order to eventually calculate the estimated stock price. It is a total of about 1,035 words.
Solution Preview
1. Existing Mortgage Bond - The existing mortgage bond would be valued using the current rate of interest and the value would be the present value of cash flows discounted at the current rate of interest. The mortgage bond is for $5,000,000 and has a interest rate of 7.5%. The new mortgage bond would have an interest rate of 9%. The repayment for mortgage bonds begins in 2010 with $500,000 being repaid each year. The calculate the cash flows for the bond which is the interest and principal repayment and discount these are 9% to get the value of the mortgage bond. This is in the table below:
Year Opening Balance Interest (7.5% of opening principal) Repayment Total Payment Discounting Factor (9%) Discounted Value
2006 5,000,000 375,000 - 375,000 0.917 343,875
2007 5,000,000 375,000 - 375,000 0.842 315,750
2008 5,000,000 375,000 - 375,000 0.772 289,500
2009 5,000,000 375,000 - 375,000 0.708 265,500
2010 5,000,000 375,000 500,000 ...
Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Operations Management
This quiz tests a student's knowledge about Operations Management
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.