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CBG Corporation has $500,000 in a bank account paying 0.35%

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CBG Corporation has $500,000 in a bank account paying 0.35% annual interest. As an alternative to leaving the money in the account, the company is considering investing the entire amount for five years. Five possible investments have been identified as shown below. • Investment A is fifty five-year discount government bonds which cost $10,000 each and will repay all interest and principal ($10,000) in a lump sum at maturity. The current market rate on similar bonds is 2.5%. • Investment B is five hundred five-year corporate coupon bonds which cost $1,000 each and will pay annual interest with the par value ($1,000) repaid at maturity. The coupon interest rate on the bonds is 4% and the current market rate on bonds of a similar credit rating is 3.5%. • Investment C is five thousand shares of preferred stock which costs $100 per share and pays a fixed annual dividend of $8.50 per share. The current market rate of return on similar preferred stock is 9%. • Investment D is ten thousand shares of common stock which costs $50 per share and recently paid an annual dividend of $4.25 per share. The company has been increasing earnings and dividends at an average annual rate of 4%. The current market rate of return on similar common stock is 12%. • Investment E is a new machine tool center which would be used in an expanded assembly line in the company’s manufacturing plant. The tool center will cost $500,000 and is expected to return cash flows of $125,000 per year for five years. The company uses a cost of capital of 10% for this type of investment. Assuming that you will invest in only one of these five (if any), which would you choose and why? Refer to your calculations and to any other appropriate factors (such as risk) in your answer. Make sure to explain the approach you took in your calculations and why it is appropriate to this problem.
Submitted: 2 years ago.
Category: Homework
Expert:  Homework Girl replied 2 years ago.
Hello, is there a word count to this answer? When do you need this by?
Customer: replied 2 years ago.
Another tutor is looking at this right now but I don't know if they're going to take it. I need it by 11 pm. It is 7pm here now. If she doesn't take it, I would be willing to make it $150. There is no word count but I need the Excel calculations and explanations, as it states in the problem.
Customer: replied 2 years ago.
The problem was opened to all experts. If you can possibly work this, I will pay $150.
Expert:  Homework Girl replied 2 years ago.
Hello, I think BusinessTutor is still working it out. I'll give him some time and will work on it if he is unavailable within the hour.
Customer: replied 2 years ago.
Thank you. I'm also working on it myself but will still be willing to pay for the answer. I haven't received anything else from Business Tutor but it now says that "BusinessTutor may be offline or answering another question." I'm not sure if she's working on it or not. Thank you, XXXXX XXXXX appreciate your willingness to help. Please check back.
Expert:  Homework Girl replied 2 years ago.
Hello, I didn't hear back from Business Tutor. Do you still want this assignment or are you working on it yourself?
Customer: replied 2 years ago.
I also sent a message to Business Tutor but did not get a response. I am working on it but I would appreciate it greatly if you could work on it. It's pretty important and I want to make sure my answers are correct.
Customer: replied 2 years ago.
Please let me know if you are working on this. Thank you
Expert:  Homework Girl replied 2 years ago.
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Homework Girl, Graduate Student
Category: Homework
Satisfied Customers: 871
Experience: 10+ years of tutoring, BS in Biology and English, Current Chicago Examiner and Writer
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