Refer to the bond valuation calculation on page 176 of the texr. Using a financial calculator, solve for the present value of the 10-year bond on its issue date. The bond has a par value of $1,000, coupon rate of 10%, and a discount rate of 8%.

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176 EXHIBIT 7.4 10 4 5 G 7 11 12 13 19 20 21 8 9 14 15 16 17 18 22 27 28 29 30 31 32 ABCDE 2 NewFangled Sports Products, Inc. Valuation of Stock PART II Financial Management b F d Valuation of stock. 1 Expected Dividend Payment Per Share 2 Discount Period in Years a Discount Factor Discount Rate Value of Stock Based on Dividend Payments Perpetual Growth Rate Terminal Value 3 Present Value-Cash Flow/Terminal Value 4 Net Present Value НО P FYE Current Year $1.00 0.00 1.0000 11.2% 4.0% $1.00 $17.36 Q FYE CY+1 $1.10 1.00 0.8993 $0.99 R Projected FYE CY+2 $1.15 2.00 0.8087 $0.93 S FYE CY+3 $1.20 3.00 0.7273 $0.87 FYE CY+4 $1.30 4.00 0.6540 $0.85 Notes: Reflects end-of-year discounting convention. Based upon the Cost of Equity Capital as reported in Ibbotson's Cost of Capital Yearbook (data through June 2012) for SIC 3949. *Based upon estimated long term cash flow growth rate of the economy in general. 'Terminal Value-Terminal Year Cash Flow/(Discount Rate-Perpetual Growth Rate) - Terminal Year $1.40 0.6540 $19.44 $12.72 176 EXHIBIT 7.4 10 4 5 G 7 11 12 13 19 20 21 8 9 14 15 16 17 18 22 27 28 29 30 31 32 ABCDE 2 NewFangled Sports Products, Inc. Valuation of Stock PART II Financial Management b F d Valuation of stock. 1 Expected Dividend Payment Per Share 2 Discount Period in Years a Discount Factor Discount Rate Value of Stock Based on Dividend Payments Perpetual Growth Rate Terminal Value 3 Present Value-Cash Flow/Terminal Value 4 Net Present Value НО P FYE Current Year $1.00 0.00 1.0000 11.2% 4.0% $1.00 $17.36 Q FYE CY+1 $1.10 1.00 0.8993 $0.99 R Projected FYE CY+2 $1.15 2.00 0.8087 $0.93 S FYE CY+3 $1.20 3.00 0.7273 $0.87 FYE CY+4 $1.30 4.00 0.6540 $0.85 Notes: Reflects end-of-year discounting convention. Based upon the Cost of Equity Capital as reported in Ibbotson's Cost of Capital Yearbook (data through June 2012) for SIC 3949. *Based upon estimated long term cash flow growth rate of the economy in general. 'Terminal Value-Terminal Year Cash Flow/(Discount Rate-Perpetual Growth Rate) - Terminal Year $1.40 0.6540 $19.44 $12.72

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92654 Explanation Using a financial calculator to solve for the pr... View the full answer