Rose Gardens is looking into raising $500,000. The following are potential opportunities for raising this capital: Rose Gardens’ common stock paid dividends of $1.50 and they anticipate that it will grow at a rate of 3% for the foreseeable future. Floatation cost is $10. Rose Gardens can issue bonds with a par value of the bond is $1,000 offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Administrative fees will be $15. Rose Garden’s is also considering selling preferred stock that pays dividends of $2.00 and has a flotation cost of $10. Requirement: Calculate the value of each of the above securities. Keep in mind that the expected rate of return for all securities mentioned above is 7%.
Rose Gardens is looking into raising $500,000. The following are potential opportunities for raising this capital: Rose Gardens’ common stock paid dividends of $1.50 and they anticipate that it will grow at a rate of 3% for the foreseeable future. Floatation cost is $10. Rose Gardens can issue bonds with a par value of the bond is $1,000 offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Administrative fees will be $15. Rose Garden’s is also considering selling preferred stock that pays dividends of $2.00 and has a flotation cost of $10. Requirement: Calculate the value of each of the above securities. Keep in mind that the expected rate of return for all securities mentioned above is 7%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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NO.1
Rose Gardens is looking into raising $500,000. The following are potential opportunities for raising this capital:
- Rose Gardens’ common stock paid dividends of $1.50 and they anticipate that it will grow at a rate of 3% for the foreseeable future. Floatation cost is $10.
- Rose Gardens can issue bonds with a par
value of the bond is $1,000 offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Administrative fees will be $15. - Rose Garden’s is also considering selling preferred stock that pays dividends of $2.00 and has a flotation cost of $10.
Requirement:
Calculate the value of each of the above securities. Keep in mind that the expected
Make sure to support your answer with workings and explanations. Tax rate is 30%
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