Pembroke Company wants to issue a 20-year bond to finance an expansion project. The company’s current bonds are selling for $1,063 in the market and pay interest semi-annually over the 20-year term. What should be the face value of the bond if the company wants to sell the bonds at face value?
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Paul Adams owns a health club in downtown Los Angeles. He charges his customers an annual fee of $500, and currently has 500 clients. Paul calculates that he can increase his annual fee by 6%, and expects the club’s membership to grow steadily at a rate of 3% per year over the next five years. The total operating cost of the health club is $75,000 per year, and is expected to increase at a rate of 2% per year due to inflation. After five years, Paul plans to close the health club and buy a luxury yacht worth $500,000 to travel around the world for the rest of his life. How much money can Paul spend each year during his global travel assuming he has 25 years left to live and earns a return of 9% on his savings?
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Universal Laser Company has just paid a dividend of $2.75 per share, and the company’s dividend is expected to grow indefinitely at a rate of 6% per year. Investors require a rate of return of 16% for the first 3 years, 14% for the next 3 years, and 11% thereafter. What is the current price of the company’s stock?
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The Fifth International Bank has just issued some new preferred shares. These preferred shares will perpetually pay an annual dividend of $7 starting five years from now. If the market demands a rate of return of 6% for this investment, what is the price of such a preferred share today?
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You own stocks in Smart Money Company worth $100,000. After 1 year, you will receive a dividend of $1.50 per share. After 2 years, your dividend per share will be $2.25. After 3 years, you will be able to sell the stocks for $60 per share. The tax rate on dividends is 28%, and capital gains tax is assumed to be nonexistent. The required rate of return is 15%. What is the total number of shares you own?
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