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327 CHAPTER 10 | Stock Valuation Mini-Case You have finally saved $10,000 and are ready to make your first investment. You have the following three
327 CHAPTER 10 | Stock Valuation Mini-Case You have finally saved $10,000 and are ready to make your first investment. You have the following three alternatives for invest- Your required rates of return for these investments are ent for the bond, 7 percent for the preferred stock, and 15 perc ing that money percent for the common stock. Using this information, answer the following questions Capital Cities ABC, Inc. , bonds, which have a par value of $1,000 and a coupon interest rate of 8.75 percent, are selling for $1,314 and mature in 12 years a. Calculate the value of each investment based on your re- quired rate of return b. Which investment would you select? Why? Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50 c. Assume Emerson Electric's managers expect an earnings downturn and a resulting decrease in growth of 3 percent. How does this affect your answers to parts a and b? . Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32 dividend, and the firm's earn ings per share have increased from $1.49 to S3.06 in the d. What required rates of return would make you indifferent to past five years. The firm expects to grow at the same rate for the foreseeable future all three options? 327 CHAPTER 10 | Stock Valuation Mini-Case You have finally saved $10,000 and are ready to make your first investment. You have the following three alternatives for invest- Your required rates of return for these investments are ent for the bond, 7 percent for the preferred stock, and 15 perc ing that money percent for the common stock. Using this information, answer the following questions Capital Cities ABC, Inc. , bonds, which have a par value of $1,000 and a coupon interest rate of 8.75 percent, are selling for $1,314 and mature in 12 years a. Calculate the value of each investment based on your re- quired rate of return b. Which investment would you select? Why? Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50 c. Assume Emerson Electric's managers expect an earnings downturn and a resulting decrease in growth of 3 percent. How does this affect your answers to parts a and b? . Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32 dividend, and the firm's earn ings per share have increased from $1.49 to S3.06 in the d. What required rates of return would make you indifferent to past five years. The firm expects to grow at the same rate for the foreseeable future all three options
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