Aero Plain, Inc. is also considering the issue of new, 20-ye

Assignment Help Finance Aero Plain, Inc. is also considering the issue of new, 20-ye

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Aero Plain, Inc. is also considering the issue of new, 20-ye

Aero Plain, Inc. is also considering the issue of new, 20-year bonds to ob… Show more Task 2: Bond Evaluation Aero Plain, Inc. is also considering the issue of new, 20-year bonds to obtain the needed funds for the new plant in Mexico. The company currently has 6.5% semiannual coupon bonds in the market selling for $1,052 that mature in 20 years. 1. What coupon rate should Aero Plain set on its new bonds so that the selling price is equal to the par value? Show your calculations and explain. (10 pts) 2. What is the difference between the coupon rate and the YTM of bonds? (10 pts) 3. What factors will contribute to the riskiness of these bonds? Please explain. (10 pts) 4. What type of positive and negative covenants might Aero Plain use in future bond issues? (10 pts) Task 3: Evaluating Competitor’s Stock Aero Plain, Inc. is concerned about recent declines in the stock market and would like to compare its stock price and rate of return with those of its key competitors. Key competitors Include Raytheon, Boeing, Lockheed Martin, and the Northrop Grumman Corporation. 1. Using the dividend growth model and assuming a dividend growth rate of 5%, what is the rate of return for one of three key competitors? Use Yahoo Finance or Google Finance to obtain the latest dividend amount and price for one of the key competitors. (Caution: The dividend shown in Google Finance is the Quarterly dividend so be sure to make the adjustment to annual.) Include a screen shot of the data page for the firm you selected and show your calculations. (15 pts) 2. Aero Plain wants to offer the same rate of return you calculated above to its stockholders. But Aero Plain only pays dividends of $1.00 annually and the anticipated growth rate is a little slower at 4%. Using the rate of return above, what should be the current selling price of Aero Plain, Inc. common stock? Show your calculations. (10 pts) 3. Assume Aero Plain has also a preferred stock issue. Which type of stock, common or preferred, has more risk? Which one has the higher rate of return? (5 pts) 4. What would happen to the price of common stock you computed above if Aero Plain, Inc. announced that dividends at the end of the year will increase? What if the required rate of return increases? (10 pts) • Show less

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