milestone two stock valuation and bond issuance sections ii and iii

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Instructions

For this milestone, submit a draft of the Stock Valuation and Bond Issuance sections of the final project, along with your supporting explanations. Base your calculations on the data provided in this case study. Be sure to substantiate your claims.

Submit your calculations on the designated tab of the Final Project Student Workbook 2 and your supporting explanations as a Microsoft Word document.

Specifically, the following critical elements must be addressed:

II. Stock Valuation

A. Based on the figures provided, calculate each of the following:

1. The new dividend yield if the company increased its dividend per share by 1.75

2. The dividend yield if the firm doubled its outstanding shares

3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above

B. What effect would you expect each of the calculations you performed to have in terms of shareholder value? In other words, suppose the company’s goal is to maximize shareholder value. How will each of the situations support or inhibit that goal? Be sure to justify your reasoning.

C. To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.

III. Bond Issuance

A. Assuming this company already has bonds outstanding, calculate the following:

1. The new value of the bond if overall rates in the market increased by 5%

2. The new value of the bond if overall rates in the market decreased by 5%

3. The value of the bond if overall rates in the market stayed exactly the same

B. What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner?

In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasoning.

C. To what extent do you feel the company’s bond issuance policies support or hinder their strategies? For example, if the company is attempting to fund operating expenses, refinance old debt, or change its capital structure, are they issuing sufficient bonds to achieve these goals? Be sure to substantiate your claims.

Critical Elements

Proficient (100%)

Stock Valuation: Calculations

Accurately calculates requested figures

Stock Valuation: Shareholder Value

Analyzes the effects of each calculation on shareholder value, justifying reasoning

Stock Valuation: Dividend Policies

Assesses the extent to which dividend policies support or hinder company

strategies, justifying reasoning

Bond Issuance: Bonds

Accurately calculates requested figures

Bond Issuance: Raising Capital

Analyzes the effects of each calculation on the company’s decision to raise capital, justifying reasoning

Bond Issuance: Bond Issuance Policies

Assesses the extent to which bond issuance policies support or hinder

company strategies, justifying reasoning

Articulation of Response

Submission has no major errors related to citations, grammar, spelling, syntax, or organization

The paper must be submitted as a 3- to 4-page Microsoft Word document, not including your calculations, which should be completed in the Final Project Student Workbook 2. For additional details, please refer to the rubric document. Thanks.

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