Structured Finance Week 4

Structured Finance Week 4 - Structured Finance Homework_4 1...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Structured Finance Homework_4 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
E xercise 7.2 7-2 Constant Growth Valuation 1. Data: P 0 = D 1 ( r s g ) D 1 = $1.5 g = 7% r s = 15% P 0 = ? 2. Calculations P 0 = (D 1 )/(r s – g) = 2.5/.08 = $18.75 Answer: The Value per share of Boehm’s stock is $18.75 2
Background image of page 2
E xercise 7.4 7-4 Preferred Stock Valuation Data: V ps = $5 D ps = $50 r ps = ? Calculations: V ps = D ps ÷ r ps r ps = D ps / V ps r ps = 10% Answer: The stock’s required rate of return is 10%. 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
E xercise 7.5 7-5 Non-constant Growth Valuation Data: V ps = Dps ÷ rps b = 1.2 Year 1 P 1 = (D1)/(g +1) D 1 = D 0 + 1 = $3 P 1 = 3/(1+0.2) = 2.5 P 2 = 3/(1.07) = 2.8037 Answer: The estimate of the stock’s current price is $ 5.3037 4
Background image of page 4
After-Tax Cost of Debt 1. Data: r d = 8% = 0.08 Tax Rate = 35% = 0.35 After Tax cost of debt = ? 2. Calculations: LL’s after-tax cost of debt is: r d (1-T) = 0.08 * (1- 0.35) = 0.08* (0.65) = 0.052 =5.2% Answer: The LL’s after-tax cost of debt is 5.2%. 5
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 9

Structured Finance Week 4 - Structured Finance Homework_4 1...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online