Question
You are given with the following information statements of a public firm Bambie in the airline industry concurrently. (Notice that all negative numbers are parenthesized).
You are given with the following information statements of a public firm Bambie in the airline industry concurrently. (Notice that all negative numbers are parenthesized). The firm has issued 12 million shares of common stock with current market price as $45/per share, the expected dividend is $4.90/per share with 3.5% growth rate, 300,000 shares of preferred stocks with promised preferred dividend and preferred stock price as $2.20/per share and $22.5/per share, respectively. The firm also has currently, 2 million 3.6%-coupon bonds with $1,000 face value that pays the coupons semi-annually. The current bond price is $735/per bond. The bonds are expected to mature in 2020.
Answer the following questions:
a) If using the market prices for assessment on rates of return, what is the rate of return the common stock of Bambie? What is the rate of return for their preferred stocks?
b) What is the bond's yield to maturity of the firm's corporate bond?
c) Suppose you are also given with the following financial statements of Bambie for the past three years. What are the historical returns on equity for this company for the past three years? Is the firm Bambie doing well from the perspectives of shareholders? Why or why not?
d) Is this firm well-diversified with their arrangement of capital? That is, are they well diversified with different sources of capital?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a To calculate the rate of return for the common stock of Bambie we can use the dividend discount model DDM The rate of return is the discount rate th...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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