ESHBC Corp is a semiconductor manufacturing company based in Argentina with a beta of 1.25 and a current market price of $12.25. The company has $2,000,000 in preference shares outstanding with a market price of $20 which pays an annual dividend of $1.50. The company also has 6,000,000 in 20-year, 1000 par value bonds, paying an annual coupon of 5% and a current market price of $1,050. The remainder of the capital structure is funded by equity. You have been given the following information and are advised to ignore taxes. 2019 Revenue – $9,000,000 Net Income – $550,000 2019 Dividend – $450,000 Shares Outstanding – 400,000 2019 Free Cash Flow – 345,000 Assets – $13,500,000 2020 Free Cash Flow – 355,000 Risk Free Rate – 4.5% Market Risk Premium – 4% a.Calculate the required rate of return on equity b.Calculate the intrinsic value of the stock at the end of 2019 using the dividend discount model c.Provide a recommendation on HBC Corporation to an investor based on your calculations in B
ESHBC Corp is a semiconductor manufacturing company based in Argentina with a beta of 1.25 and a current market price of $12.25. The company has $2,000,000 in preference shares outstanding with a market price of $20 which pays an annual dividend of $1.50. The company also has 6,000,000 in 20-year, 1000 par value bonds, paying an annual coupon of 5% and a current market price of $1,050. The remainder of the capital structure is funded by equity. You have been given the following information and are advised to ignore taxes.
2019 Revenue – $9,000,000 Net Income – $550,000
2019 Dividend – $450,000 Shares Outstanding – 400,000
2019 Free Cash Flow – 345,000 Assets – $13,500,000
2020 Free Cash Flow – 355,000
Risk Free Rate – 4.5% Market Risk Premium – 4%
a.Calculate the required rate of return on equity
b.Calculate the intrinsic value of the stock at the end of 2019 using the dividend discount model
c.Provide a recommendation on HBC Corporation to an investor based on your calculations in B
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