Question marks

Ouestion 3 (20 marks) A company has a capital structure of 75% debt and 25% equity. The net income was stated as $1 ,OOO,OO() and the company paid $200,000 in dividends. The company has 25,000 shares outstanding. The company had issued a bond with face value of SI ,OOO paying 10% coupon rate, which matures in three 3 years with a yield to maturity of 8%. The company's stock has a beta of 1.2%. It was established that the risk free rate is 6% and Market Risk premium is 4%. The company is a constant growth firm that just paid dividends of $2, selling for $12.00 per share and has a growth rate of 10%. The firm pays taxes at 40%. Required a) b) c) d) e) f) Explain behaviour ofa bond. (3 marks) Define the following terms in relation to a bond: 3 i. Par Value (1 mark) ii. Coupon Rate (I mark) iii. Yield to Maturity (I mark) Determine the price of the bond. (2 marks) Using the CAPM method, determine the cost of equity? (4 marks) Use the Dividend Discount Model to determine the company's cost of equity. (4 marks) What is the firm's retention rate? (2 marks) Determine the ROE of the firm. (2 marks)