Security Valuation

Mumford Company is considering an investment in a key supplier - Jethro Tull Materials Inc..

The current market price of Tull common stock is $32 per share and a single Tull corporate bond (due in 5 years) is currently priced in the market at $1,080.

For the past 5 years Tull's EPS growth rate has been 8% and this is expected to continue. The dividend paid over the past year was $1.80 per share. Mumford expects a rate of return of 14% on equity investments. The contract rate on the bond is 9% but because of favorable risk characteristics your financial advisor team indicates that a yield to maturity of 8% is appropriate.

Based upon your financial forecasts calculate what you (Mumford) believe the appropriate market prices of the securities to be. Comment upon your calculated values relative to the current market values.

_________________ Calculated value of Tull Bonds (according to your valuation)

_________________ Calculated value of Tull Common Stock

Comment on the outcomes of your valuation compared to the current market values. Include in your discussion what could (we don't know for sure) be causing any deviations between your valuation and the current market valuations. Be well rounded with your answer. I'm trying to assess broad understanding. Please provide specific guidance on what the causal factors might be in this case.