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1) A Software Company’s shares have the market price of $20 and the book value of $12. If its cost of equity capital is 15 per cent and its book value is expected to rise at 5 per cent per year indefinitely, find out the market’s assessment of its steady state return on equity? If share price increases to $35 and market doesn’t expect organization’s growth rate to change, find out the revised steady state ROE? If, in its place, price increase was due to the increase in market’s assessments about long-term book value growth rather than long-term ROE, what would price revision imply for steady state growth rate?

Suppose interest rates are 5% for AAA Rated Corporate bonds, compute the value of your bond relative to this interest rate. Suppose that i=5%. Is your bond selling for premium or at discount based on your computations? prepare down the factors that can impact bond valuation? Support you work with reference page and in cite quotes.

Basic Finance, Finance

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