Rob wants to start his own restaurant company. He wants to finance the company using debt,...

 

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Rob wants to start his own restaurant company. He wants to finance the company using debt, preferred stocks, and common stocks. He has decided to set up his capital structure with 30% debt, 25% preferred stocks, and 45% common stocks. Market statistics: the risk-free rate is 4% and the market rate is 14%. 1. Suppose a bond pays $145 at the end of each year forever. If 14% is the relevant interest rate, what is the value of this investment to you today? Bond Price 2. Rob wants to sell preferred stocks on the NYSE. His expected dividend is $3.50, and the required rate of return on the stock is 6%. At what price should Rob sell his preferred stock? Preferred stock price = 3. Rob also wants to issue common stocks with a beta of 1.2. His projected dividend is $3.87, and the growth rate of his company is projected at 13%. At what price should he sell his stocks? R. (required rate of return) = Common stock price: 4. Rob wants to borrow $9,500,000 to get his restaurant built. It will be repaid in equal installments over the next 10 years at an 12% interest rate. Develop an amortization schedule for Rob. Year 1 2 3 4 5 6 7 8 9 10 Payment Interest Principal Principal Balance Rob wants to start his own restaurant company. He wants to finance the company using debt, preferred stocks, and common stocks. He has decided to set up his capital structure with 30% debt, 25% preferred stocks, and 45% common stocks. Market statistics: the risk-free rate is 4% and the market rate is 14%. 1. Suppose a bond pays $145 at the end of each year forever. If 14% is the relevant interest rate, what is the value of this investment to you today? Bond Price 2. Rob wants to sell preferred stocks on the NYSE. His expected dividend is $3.50, and the required rate of return on the stock is 6%. At what price should Rob sell his preferred stock? Preferred stock price = 3. Rob also wants to issue common stocks with a beta of 1.2. His projected dividend is $3.87, and the growth rate of his company is projected at 13%. At what price should he sell his stocks? R. (required rate of return) = Common stock price: 4. Rob wants to borrow $9,500,000 to get his restaurant built. It will be repaid in equal installments over the next 10 years at an 12% interest rate. Develop an amortization schedule for Rob. Year 1 2 3 4 5 6 7 8 9 10 Payment Interest Principal Principal Balance

Answer rating: 100% (QA)

Year Payment Interest Principal Principal Balance 1 1242823 1140000 102823 9397177 2 1242823 1127661 115162 9282015 3 1242823 1115764 127059 9154956 4 ... View the full answer