This case discusses the evaluation of stocks and bonds. It says that in textbooks, the valuation of stocks and bonds is simply verbalize as the present economic value of all the future bills flows expected from the security. The concept is logical, straightforward, and simple. The valuation of bonds is usually presented first, since the relatively trusted cash flows are broken into an annuity and a defrayal of the par value at some specific run across in the future. Preferred stock valuation follows bond valuation and the value of favorite(a) stock is shown to be the present value of perpetual annuity. The cash flows from the constant-size dividend are fairly certain, and most preferred stocks do not have a maturity date. Finally, parkland stock is presented but neither the future cash flows (from dividends) nor the lowest value is known with any degree of certainty.
The case describes residence Products, Inc, a leading manufacturer of prescription and ethical drugs; potency foods and candies; and proprietary drugs. Total revenues in the last fiscal year were in excess of $9 billion. Companys capital structure is make up of 34% long-term debt, 3% preferred stock, and 63% putting green stock. The case describes the two largest domestic long-term debt, and be quiet this issue disclosing that these two bonds are layd A by Moodys.
Then, it dialogue about preferred stocks. 5.5 million shares were issued in Feb. 1979 in familiarity with the merger of FDS Holding Company onto a subsidiary of HPI. Finally, it describes the common stock and informed that returns from common stocks come from the cash dividend salary and /or changes in the price of the stock. Two major factors that impact the price of stock are changes in the required rate of return, caused primarily by changes in risk, and change in the...
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