Question
The following is information on Trimax Inc.'s debt and equity, income statement, and its comparable companies. --Bonds outstanding with 6 years remaining until maturity with
The following is information on Trimax Inc.'s debt and equity, income statement, and its comparable companies.
--Bonds outstanding with 6 years remaining until maturity with a current market price of $925, and a coupon rate of 7.5% that is paid annually
--The company's dividend payout ratio is 60%
--The dividend is expected to increase by 10.0% next year, 7.0% the following year, and then increase at a constant rate of 5.0% forever
--Investors require an annual return of 14.0% on the stock
--Shares outstanding of 200,000
--The current year income statement for Trimax is below
--Comparable company (Comp 1, Comp 2, Comp 3, and Comp 4) share price and financial information is below
1) What is the yield to maturity on Trimax's bonds?
2) What is the price per share of Trimax's stock using the dividend discount model?
3) If it is reasonable to value a share of Trimax's stock at the average P/E of the comparable companies, what value would result?
4) If Trimax has a higher expected growth rate than the comparable companies, should Trimax have a higher or lower P/E ratio than the comparable companies?
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