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# Common Stock, Coupon Rate, Dividends Questions

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A bond issued by Cornwallis, Inc. 15 years ago has a coupon rate of 7% and a face value of \$1,000. The bond will mature in 10 years. What is the value (to the nearest dollar) to an investor with a required return of 10%?
Alaska Power Company issued \$1,000 bonds that have an annual coupon rate of 7.5%. The present market value of the bonds is \$1,125. If the bonds have 15 years remaining until maturity, what is the current yield on Alaska Power Company bonds?
Creamy Custard common stock is currently selling for \$75.00. It just paid a dividend of \$3.65 and dividends are expected to grow at a rate of 6% indefinitely. What is the required rate of return on Creamy Custard's stock?
Kilsheimer Company just paid a dividend of \$4 per share. Future dividends are expected to grow at a constant rate of 6% per year. What is the value of the stock if the required return is 12%?
H. J. Corp. common stock paid \$2.50 in dividends last year (D0). Dividends are expected to grow at a 12-percent annual rate forever. If H. J.'s current market price is \$40.00, what is the stock's expected rate of return (nearest .01 percent)?
A project requires an initial investment of \$347,500. The project generates free cash flow of \$600,000 at the end of year 3. What is the internal rate of return for the project?
Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs \$75,000 and is expected to generate \$48,000 in year one and \$45,000 in year two. Project B costs \$80,000 and is expected to generate \$34,000 in year one, \$37,000 in year two, \$26,000 in year three, and \$25,000 in year four. Zellars, Inc.'s required rate of return for these projects is 10%. The net present value for Project B is:
Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs \$75,000 and is expected to generate \$48,000 in year one and \$45,000 in year two. Project B costs \$80,000 and is expected to generate \$34,000 in year one, \$37,000 in year two, \$26,000 in year three, and \$25,000 in year four. Zellars, Inc.'s required rate of return for these projects is 10%. The modified internal rate of return for Project A is:
A corporate bond has a face value of \$1,000 and a coupon rate of 7%. The bond matures in 10 years and has a current market price of \$988. If the corporation sells more bonds it will incur flotation costs of \$30 per bond. If the corporate tax rate is 40%, what is the after-tax cost of debt capital?

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## Finance

1. Over the past 5 years, NBA's common stock earnings per share have grown from \$0.62 to \$0.91. If an investor is NBA stock is assumed to have a required rate of return of 14%, what is the current value of NBA if its current dividend is 0.12? Assume EPS will continue to grow at a constant rate.

2. Morton Industries' common stock sells for \$54. Dividends are expected to continue to grow at a rate of 8% annually. If investors in Morton require a 13% rate of return, what is the current dividend?

3.Over the past 10 years the dividends of Allegro have grown from \$0.45 to \$1.82 per share. Determine the value of Allegro's common stock to an investor who requires a 20% rate of return, assuming that dividends continue growing at the same rate as they grew over the past 10 years.

4.The State of Adaven issued \$50 million of perpetual bonds in 1990. The bonds were issued in \$100 denominations with an annual coupon interest rate of 5%. Determine the value of these bonds today to an investor who requires a 10% return on his investment

5. Determine the yield-to-call (to nearest 0.1 of a percent) of an LTV bond with a 14 percent coupon, that pays interest semiannually. The bond can be called in 7 years, has a call premium of \$140, and is currently selling for \$1154.

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