You are a financial analyst with an investment bank and are examining XYZ company. The yield on 10-year government bonds is 3% and the market risk premium is 5%. XYZ company has a beta of 1.2. The company just paid a dividend of $5 per share. 

 

(d) The company is deliberating whether to issue preferred shares or bonds to finance a new project.

 
(i) Discuss three (3) reasons why a company might prefer issuing preferred  shares rather than bonds.

(ii) Explain when you might confidently use IRR (instead of NPV) to determine whether to accept or reject a project.

(e) Suppose the company is thinking of issuing bonds. It collects data on comparable  companies to determine how to price its bonds. What criteria determine whether these  companies' bonds are comparable, and what measure would you use to price the company's bonds?

(f) You are looking at the following 3 companies as candidates for the comparison in part?

(e). Which company is most likely to be a comparable company? 

Answer rating: 100% (QA)

Here are the answers to the questions numbered accordingly d The company is deliberating whether to issue preferred shares or bonds to finance a new project i Three reasons why a company might prefer ... View the full answer