3. (Bond valuation) Enterprise, Inc. bonds have an annual coupon rate of 12 percent. The interest...

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3. (Bond valuation) Enterprise, Inc. bonds have an annual coupon rate of 12 percent. The interest is paid semiannually and the bonds mature in 12 years. Their par value is $1,000. If the market's required yield to maturity on a comparable-risk bond is 14 percent, what is the value of the bond? What is its value if the interest is paid annually? on a. The value of the Enterprise bonds if the interest is paid semiannually is $ (Round to the nearest cent.) 4. (Yield to maturity) A bond's market price is $725. It has a $1,000 par value, will mature in 10 years, and has a coupon interest rate of 9 percent annual interest, but makes its interest payments semiannually. What is the bond's yield to maturity? What happens to the bond's yield to maturity if the bond matures in 20 years? What if it matures in 5 years? 5. a. The bond's yield to maturity if it matures in 10 years is 14.24 %. (Round to two decimal places.) b. The bond's yield to maturity if it matures in 20 years is %. (Round to two decimal places.) (Yield to maturity) Fitzgerald's 30-year bonds pay 8 percent interest annually on a $1,000 par value. If the bonds sell at $935, what is the bond's yield to maturity? What would be the yield to maturity if the bonds paid interest semiannually? Explain the difference. a. The bond's yield to maturity if the bond pays interest annually is 8.61 %. (Round to three decimal places.) b. The bond's yield to maturity if the bond paid interest semiannually would be %. (Round to three decimal places.) 9. (Bond valuation relationships) A bond of Telink Corporation pays $100 in annual interest, with a $1,000 par value. The bonds mature in 10 years. The market's required yield to maturity on a comparable-risk bond is 8 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 6 percent? c. Interpret your findings in parts a and b. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 8 percent? (Round to the nearest cent.) 12. (Related to Checkpoint 10.1) (Common stock valuation) Header Motor, Inc., paid a $3.83 dividend last year. At a constant growth rate of 7 percent, what is the value of the common stock if the investors require a 14 percent rate of return? The value of the common stock is $ (Round to the nearest cent.) 13. (Measuring growth) Given that a firm's return on equity is 23 percent and management plans to retain 42 percent of earnings for investment purposes, what will be the firm's growth rate? If the firm decides to increase its retention rate, what will happen to the value of its common stock? 14. a. The firm's growth rate will be %. (Round to two decimal places.) (Common stock valuation) Wayne, Inc.'s outstanding common stock is currently selling in the market for $18. Dividends of $1.57 per share were paid last year, return on equity is 34 percent, and its retention rate is 24 percent. a. What is the value of the stock to you, given a required rate of return of 16 percent? b. Should you purchase this stock? a. Given a required rate of return of 16 percent, the value of the stock to you is $ (Round to the nearest cent.) 15. (Measuring growth) Solarpower Systems earned $20 per share at the beginning of the year and paid out $8 in dividends to shareholders (so, Do = $8) and retained $12 to invest in new projects with an expected return on equity of 21 percent. In the future, Solarpower expects to retain the same dividend payout ratio, expects to earn a return of 21 percent on its equity invested in new projects, and will not be changing the number of shares of common stock outstanding. a. Calculate the future growth rate for Solarpower's earnings. b. If the investor's required rate of return for Solarpower's stock is 15 percent, what would be the price of Solarpower's common stock? c. What would happen to the price of Solarpower's common stock if it raised its dividends to $14 and then continued with that same dividend payout ratio permanently? Should Solarpower make this change? (Assume that the investor's required rate of return remains at 15 percent.) d. What would happened to the price of Solarpower's common stock if it lowered its dividends to $4 and then continued with that same dividend payout ratio permanently? Does the constant dividend arowth rate model work a. What is the future growth rate for Solarpower's earnings? % (Round to two decimal places.) 16. (Common stock valuation) Assume the following: the investor's required rate of return is 14.5 percent, the expected level of earnings at the end of this year (E) is $10, the retention ratio is 30 percent, the return on equity (ROE) is 12 percent (that is, it can earn 12 percent on reinvested earnings), and similar shares of stock sell at multiples of 6.422 times earnings per share. Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (PIE). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? e. What would happen to the P/E ratio (P/E) and stock price if the company increased its retention rate to 75 percent (holding all else constant)? What would happen to the P/E ratio (P/E) and stock price if the company paid out all its earnings in the form of dividends? f. What have you learned about the relationship between the retention rate and the P/E ratios? C a. What is the expected growth rate for dividends? 3.60 % (Round to two decimal places.) b. What is the price earnings ratio (P/E)? 6.422 (Round to three decimal places.) c. What is the stock price using the P/E ratio valuation method? $ 64.22 (Round to the nearest cent.) d. What is the stock price using the dividend discount model? $ 64.22 (Round to the nearest cent.) e. (i) Using the dividend discount model, what would be the stock price if the company increased its retention rate to 75% (holding all else constant)? $ (Round to the nearest cent.) 19. (Preferred stock valuation) What is the value of a preferred stock where the dividend rate is 18 percent on a $100 par value, and the market's required yield on similar shares is 14 percent? The value of the preferred stock is $ per share. (Round to the nearest cent.) 3. (Bond valuation) Enterprise, Inc. bonds have an annual coupon rate of 12 percent. The interest is paid semiannually and the bonds mature in 12 years. Their par value is $1,000. If the market's required yield to maturity on a comparable-risk bond is 14 percent, what is the value of the bond? What is its value if the interest is paid annually? on a. The value of the Enterprise bonds if the interest is paid semiannually is $ (Round to the nearest cent.) 4. (Yield to maturity) A bond's market price is $725. It has a $1,000 par value, will mature in 10 years, and has a coupon interest rate of 9 percent annual interest, but makes its interest payments semiannually. What is the bond's yield to maturity? What happens to the bond's yield to maturity if the bond matures in 20 years? What if it matures in 5 years? 5. a. The bond's yield to maturity if it matures in 10 years is 14.24 %. (Round to two decimal places.) b. The bond's yield to maturity if it matures in 20 years is %. (Round to two decimal places.) (Yield to maturity) Fitzgerald's 30-year bonds pay 8 percent interest annually on a $1,000 par value. If the bonds sell at $935, what is the bond's yield to maturity? What would be the yield to maturity if the bonds paid interest semiannually? Explain the difference. a. The bond's yield to maturity if the bond pays interest annually is 8.61 %. (Round to three decimal places.) b. The bond's yield to maturity if the bond paid interest semiannually would be %. (Round to three decimal places.) 9. (Bond valuation relationships) A bond of Telink Corporation pays $100 in annual interest, with a $1,000 par value. The bonds mature in 10 years. The market's required yield to maturity on a comparable-risk bond is 8 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 6 percent? c. Interpret your findings in parts a and b. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 8 percent? (Round to the nearest cent.) 12. (Related to Checkpoint 10.1) (Common stock valuation) Header Motor, Inc., paid a $3.83 dividend last year. At a constant growth rate of 7 percent, what is the value of the common stock if the investors require a 14 percent rate of return? The value of the common stock is $ (Round to the nearest cent.) 13. (Measuring growth) Given that a firm's return on equity is 23 percent and management plans to retain 42 percent of earnings for investment purposes, what will be the firm's growth rate? If the firm decides to increase its retention rate, what will happen to the value of its common stock? 14. a. The firm's growth rate will be %. (Round to two decimal places.) (Common stock valuation) Wayne, Inc.'s outstanding common stock is currently selling in the market for $18. Dividends of $1.57 per share were paid last year, return on equity is 34 percent, and its retention rate is 24 percent. a. What is the value of the stock to you, given a required rate of return of 16 percent? b. Should you purchase this stock? a. Given a required rate of return of 16 percent, the value of the stock to you is $ (Round to the nearest cent.) 15. (Measuring growth) Solarpower Systems earned $20 per share at the beginning of the year and paid out $8 in dividends to shareholders (so, Do = $8) and retained $12 to invest in new projects with an expected return on equity of 21 percent. In the future, Solarpower expects to retain the same dividend payout ratio, expects to earn a return of 21 percent on its equity invested in new projects, and will not be changing the number of shares of common stock outstanding. a. Calculate the future growth rate for Solarpower's earnings. b. If the investor's required rate of return for Solarpower's stock is 15 percent, what would be the price of Solarpower's common stock? c. What would happen to the price of Solarpower's common stock if it raised its dividends to $14 and then continued with that same dividend payout ratio permanently? Should Solarpower make this change? (Assume that the investor's required rate of return remains at 15 percent.) d. What would happened to the price of Solarpower's common stock if it lowered its dividends to $4 and then continued with that same dividend payout ratio permanently? Does the constant dividend arowth rate model work a. What is the future growth rate for Solarpower's earnings? % (Round to two decimal places.) 16. (Common stock valuation) Assume the following: the investor's required rate of return is 14.5 percent, the expected level of earnings at the end of this year (E) is $10, the retention ratio is 30 percent, the return on equity (ROE) is 12 percent (that is, it can earn 12 percent on reinvested earnings), and similar shares of stock sell at multiples of 6.422 times earnings per share. Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (PIE). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? e. What would happen to the P/E ratio (P/E) and stock price if the company increased its retention rate to 75 percent (holding all else constant)? What would happen to the P/E ratio (P/E) and stock price if the company paid out all its earnings in the form of dividends? f. What have you learned about the relationship between the retention rate and the P/E ratios? C a. What is the expected growth rate for dividends? 3.60 % (Round to two decimal places.) b. What is the price earnings ratio (P/E)? 6.422 (Round to three decimal places.) c. What is the stock price using the P/E ratio valuation method? $ 64.22 (Round to the nearest cent.) d. What is the stock price using the dividend discount model? $ 64.22 (Round to the nearest cent.) e. (i) Using the dividend discount model, what would be the stock price if the company increased its retention rate to 75% (holding all else constant)? $ (Round to the nearest cent.) 19. (Preferred stock valuation) What is the value of a preferred stock where the dividend rate is 18 percent on a $100 par value, and the market's required yield on similar shares is 14 percent? The value of the preferred stock is $ per share. (Round to the nearest cent.)