Lockheed Martin and CACI International want to sell me a bond that will pay me $100,000 in one...

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Lockheed Martin and CACI International want to sell me a bond that will pay me $100,000 in one year.Using the concept of present value and considering the risk of inflation, high interest rates, etc. what would I pay for this bond today?1. How would I determine the discount rate given the following financial stats for both companiesIf I would pay more than $100,000 for Lockheed Martin how would I calculate that and why?Lockheed MartinBETA 0.65Current Ratio: 1.25.Current debt/equity: 267.16Short Ratio: 4.00Profit Margin 6.05%Return on Assets: 6.76%Return on Equity: 106.74Cash Flow: operating: 3.96B - levered free:2.37BCACI International Inc.BETA: 1.38Current Ratio: 1.53Total debt/equity: 62.17Short Ratio: 11.80Profit Margin: 4.26%Return on Assets: 7.61%Return on Equity: 14.52%Cash Flow: operating: 278.26M – levered free 223.62M
	
Document Preview: Lockheed Martin and CACI International want to sell me a bond that will pay me  $100,000 in one year.Using the concept of present value and considering the risk of inflation, high interest rates, etc. what would I pay for this bond today?  1. How would I determine the discount rate given the following financial stats for both companiesIf I would pay more than $100,000 for  Lockheed Martin  how would I calculate that  and why?Lockheed MartinBETA 0.65Current Ratio: 1.25. Current debt/equity: 267.16Short Ratio: 4.00Profit Margin 6.05%Return on Assets: 6.76%Return on Equity: 106.74Cash Flow: operating: 3.96B - levered free:2.37BCACI International Inc.BETA: 1.38Current Ratio: 1.53Total debt/equity: 62.17Short Ratio: 11.80Profit Margin: 4.26%Return on Assets: 7.61%Return on Equity: 14.52%Cash Flow: operating: 278.26M – levered free 223.62M

Robert · Accepted Answer

1) Calculation of discount rate- 
As per CAPM Approach Ri = Beta (Rm – Rf) 
For Lockheed martin = 
Calculation of Rf= operating flow- leverage free inflow 
       3.96B- 2.37B = 1.59 B 
In percentage = 1.59 / 267.16 
  0.

Lockheed Martin and CACI International want to sell me a bond that will pay me $100,000 in one year. Using the concept of present value and considering the risk of inflation, high interest rates, etc....

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