Posted: September 13th, 2017

Finance

Paper, Order, or Assignment Requirements

Please follow all the steps in the directions. A separate excel file is required to show the work also. Thanks in advance!

The assignment deliverables should include an excel file with the work done as per the problems AND a paper – that 1) answers the questions posed in the problems, 2) tells us what the questions are, that these models answer and (be sure to include an intro and conclusion)

1. The Bobco Rawhide Company has a dividend payout ratio of 45%. Next year it will earn $3.25 per share and have a return on equity of 14%. The shareholders’ required return is 12%.
2. Calculate the company’s growth rate of EPS.
3. Using the earnings model, what is the value of the stock?
4. Construct a table that shows how the value of the stock will change if the ROE ranges between 10% and 20%, in 1% increments. Remember that changing the ROE will also affect the growth rate. Now, using that data, create a scatter chart to show the relationship between the value of the stock and the ROE. Is the relationship linear?
5. Using the constant-growth dividend discount model, what is the value of the stock?
6. As an investor, you are considering an investment in the bonds of the Front Range Electric Company. The bonds pay interest semiannually, will mature in eight years, and have a coupon rate of 4.5% on a face value of$1,000. Currently, the bonds are selling for $900.
7. If your required return is 5.75% for bonds in this risk class, what is the highest price you would be willing to pay? (Note: use the PVfunction.)
8. What is the current yield of  these bonds?
9. What is the yield to maturity on these bonds if you purchase them at the current price? (Note: use the RATE function.)
10. If you hold the bonds for one year, and interest rates do not change, what total rate of return will you earn? Why is this different from the current yield and YTM?
11. If the bonds can be called in three years with a call premium of 4% of the face value, what is the yield to call on these bonds? (Note: use the RATE function.)
12. 3. The Dempere Imports Company’s EPS in 2011 was $3.00, and in 2006 it was $1.80. The company’s payout ratio is 30%, and the stock is currently valued at $41.50. Flotation costs for new equity will be 7%. Net income in2012 is expected to be $15 million. The market-value weights of the firm’sdebt and equity are 40% and 60%, respectively.
13. Based on  the five-year track record, what is EPS growth rate? What will the dividend be in 2012?
14. Calculate the firm’s cost of retained earnings and the cost of new common equity.
15. Calculate the break-point associated with retained earnings.
16. If Dempere’s after-tax cost of debt is 6%, what is the WACC with retained earnings? With new common equity?