Payeur Business Finance

Stocks, Bonds, Valuation NAME:_____________________

Tony Tigers, Inc.

You work in the finance department of Tony Tigers. Inc. Tony T. Tiger has asked you to review some information regarding financing for a possible expansion for the company. He has asked you to determine the stocks and bonds information so that he has all information to present to the Board of Directors.

Your task is to analyze the two options based on the information provided, provide a list of pros and cons for each, determine the stock and bond values requested, and provide a nicely formatted document summarizing the information for Tony to present to the board.

Tony Tigers, Inc. currently earns $500,000 in income, has $4 million in equity and is planning a $1,000,000 expansion to meet its increasing demand. Tony Tigers, Inc. predicts the $1,000,000 expansion will generate an additional $450,000 in additional income. Tony would like to present the following options to the board:

1. No expansion.
2. Equity Financing (Raise the $1,000,000 via issuance of new stocks)
3. Debt Financing (Raise the $1,000,000 via the issuance of new bonds that pay 10% interest)

Create a side by side summary Income Statement showing the effects of each, including the degree of financial leverage effects.

Below your Income Statements do a side by side of the following:

1. Tony T. Tigers, Inc stock price is currently paying $12.25 annual cash dividend. Its rate of return is currently 12.5%, given a no growth (No Expansion) situation what is the current price of the common stock?

1. What will be the current price of the common stock if Option 2, above, is chosen and the dividend rate grows by 5%, with a Rate of Return = Return on Equity?

1. What will be the current price of the common stock if Option 3, above, is chosen and the dividend rate grows by 5%, with a Rate of Return = Return on Equity?

Finally Determine the Yield to Maturity for the following if Option 3 is chosen: The $1,000,000 bond will be issued with a coupon rate of 10%, a maturity of 20 years paying semi-annually, with a price of $110.00.