FIN419 Capital Valuation

FIN419 Capital Valuation - VALUATION 1 Capital Valuation...

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VALUATION 1 Capital Valuation Finance For Decision Making FIN/419
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VALUATION 2 Capital Valuation Business valuation plays an important position in the interest of company from mergers, acquisitions, and the sales of securities such as bonds and stocks. The significance of bond valuation to the company influences the financial position that helps determine the value of the company’s liabilities and obligations. In this paper, the subject is to describe Bank of America’s capital valuation and justify the current marketplace of Bank of America’s debt and equity. The paper will include supporting calculations for the capital valuation models and defend the choice of the selected valuation model. Bank of America’s capital valuation involves a consideration of different aspects. The feature is a possibility from the calculation of the rate of return corresponding to the market rates to help measure the cost of capital for the free cash flow of the organization. The result of the capital valuation is the income approach that influences and controls the statistics subject to the fair market value of the company. Using different approaches will provide an evaluation with its own distinct advantage and disadvantage. Different approaches may also reflect the true value, and at times, different values from the current value. Bond and Stock Evaluations “Whenever the required return on a bond differs from the bond’s coupon interest rate, the bond’s value will differ from its par value (Gitman, p. 304, 2009). A review of Bank of America’s (BAC) annual report and Securities and Exchange Commission filings does not reveal a required rate of return to calculate the value of their bonds. Using the market rates found on the Yahoo Finance (2011) website, Team B will use the appropriate market rate for Standard and Poor’s A-rated bonds as the required rate of return. Team B examined two issues currently trading in the corporate bond markets issued by BAC. The first bond has a 5.75% coupon and an August 15, 2016 maturity date. The second has a coupon of
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5 5.75% 57.50 1000 2.89% $1,131.39 Ytm (Req. Rate) Bank of America 5.75% due 8/15/2016 Maturity (Years) Coupon Rate Coupon Pmt Par Value Present Value (Price) 15.25 6% 60.00 1000 5.65% $1,035.15 Ytm (Req. Rate) Present Value (Price) Bank of America 6% due 8/15/2026 Maturity (Years) Coupon Rate Coupon Pmt Par Value VALUATION 3 6% and an October 15, 2026 maturity date. At 2:00 p. m. Central Standard Time, Yahoo Finance (2011) quoted a yield of 2.89% for a five-year corporate bond with an A rating and 5.65% for a 20-year corporate bond with an A rating. BAC currently has an A- rating with Standard and Poors; however,
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This note was uploaded on 08/22/2011 for the course BUS 415 taught by Professor Barnes during the Spring '11 term at Coastal Carolina University.

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FIN419 Capital Valuation - VALUATION 1 Capital Valuation...

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