Question
Answer the following questions:- You recently inherited TT$750,000 and are trying to decide between one of three investment options: the purchase of corporate bonds, the
Answer the following questions:-
You recently inherited TT$750,000 and are trying to decide between one of three investment options: the purchase of corporate bonds, the purchase of stock, or the purchase of a small business.
a) Calculate the value of the following investments: a. Natural Flour Mill, a grain grinding manufacturer has an outstanding bond that pays a coupon interest of 9% annually. The bond has a par value of $1,000 and will mature in the next 3 years. What is the bond's value at maturity, if the required rate of return for similar investments is currently 7%?
b) Bess Juice Limited's expects to pay a dividend per share of $2.50 at the end of January 2019 to its ordinary shareholders. Given the company's plans to expand its export markets to include three additional companies, analysts believe the company's dividends will grow at a constant rate of 5% per year for the foreseeable future. What price should you pay for one of Bess Juice's ordinary shares if the required rate of return for similar investments is currently 7%?
c) Renu Company Ltd. currently earns after-tax cash flow of $50,000 per year. On the basis of a review of similar risk investment opportunities, you expect to earn 7% rate of return on the proposed purchase. What price should you pay for the firm if after-tax cash flows of the firm are expected to remain at $50,000 per year for the first two years, followed by a constant annual growth rate of 3% from year 3 onwards?
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