| Course | FNCE 4101 Corporate Finance |
|---|---|
| Week | Week 4 |
| Paper type | Valuation memo |
| Length | About 640 words, 4 pages |
| Format | Memo, APA 7 citations |
| School | Walden University |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for FNCE 4101 Week 4
Memorandum
To: Investment Committee
From: Financial Analyst
Date: February 16, 2026
Re: Intrinsic value of Halvorsen Industrial Supply's 2033 bonds and common shares
Summary
One Halvorsen 5 percent bond maturing in 2033 is worth $949.93 at its traded yield of 5.8 percent. One Halvorsen common share is worth $25.77 under the constant-growth dividend model, below its $30.00 market price, which implies the market expects faster growth than the company's retention and return on equity alone support. Halvorsen Industrial Supply is the composite listed distributor used throughout this course.
The Bond
The bonds are issued in $1,000 units; each pays $50 a year, a 5.0 percent coupon, and matures in eight years. The yield used is 5.8 percent, taken from the most recent traded quote for the issue, not from the coupon. The coupon is fixed when the bond is issued; the yield is what investors require today for lending to Halvorsen for eight more years, and it has risen since issue as interest rates rose (Brealey et al., 2020).
The bond is worth less than face value because its coupon, 5.0 percent, is below the 5.8 percent investors now require. Had the yield equaled the coupon, the bond would be worth exactly $1,000.
Table 1
Discounting One Halvorsen Bond at a 5.8 Percent Yield
| Component | Cash flow | Discount factor | Present value | |
|---|---|---|---|
| Coupons, years 1 to 8 | $50 a year | Annuity factor 6.2593 | $312.96 | |
| Face value, year 8 | $1,000 | 0.6370 | $636.96 | |
| Bond value | | | $949.93 | |
Annual coupons assumed for simplicity; Halvorsen and its bonds are composite. Total differs from the sum of rounded components by one cent.
The Share
The share is valued with the constant-growth dividend model, P = D1 / (r − g), first set out by Gordon (1959).
Dividend next year. Fiscal 2025 earnings per share were $1.96 and the company paid out 60 percent, a dividend of $1.18. Growing at 5.0 percent gives an expected dividend next year of $1.24.
Growth rate. The growth rate is derived from the company's own figures: it retains 40 percent of earnings and earns about 12.5 percent on its book equity, so sustainable growth is 0.40 x 12.5 percent = 5.0 percent.
Required return. Shareholders require 9.8 percent, using the capital asset pricing inputs from the Week 5 brief. It is above the bond yield because shareholders are paid only after lenders and bear more risk.
Value. P = $1.24 / (0.098 − 0.050) = $25.77.
Comparing the Two Values
The bond's value sits close to its traded price because the yield came from the market. The share's model value, $25.77, is about 14 percent below the $30.00 market price. Working backward, the market price implies growth of about 5.7 percent at a 9.8 percent required return, or a required return of about 9.1 percent at 5.0 percent growth. Either the market expects Halvorsen to grow faster than its retention and return on equity suggest, perhaps through the planned warehouse expansion, or investors are content with a smaller return than the pricing model suggests.
The two required returns, 5.8 percent for the bond and 9.8 percent for the share, differ by 4.0 percentage points. That gap is the extra return shareholders demand for standing behind lenders in the order of payment and for bearing the variability of profits (Damodaran, 2012).
Recommendation
At $30.00, the share is priced for more growth than the company's current policies produce. The committee should hold off at this price unless it expects growth above 5.7 percent. The bond, priced near its value, is a fair holding for the committee's fixed-income allocation. Both conclusions depend on the inputs; a beta closer to 0.9, for example, would lower the cost of equity to about 8.8 percent and lift the model value of the share to about $32.55.
References
Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance (13th ed.). McGraw Hill.
Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (3rd ed.). Wiley.
Gordon, M. J. (1959). Dividends, earnings, and stock prices. The Review of Economics and Statistics, 41(2), 99-105. https://doi.org/10.2307/1927792
The Walden FNCE 4101 Week 4 instructions
In Week 4 you value one bond and one share of the same company in memo form. Open with both values. For the bond, give the face value, coupon, years remaining and the yield used, taken from a market quote rather than the coupon, and explain the difference. Discount the coupons and the face value separately in a small table. For the share, use a dividend model with the next expected dividend, a growth rate derived from the company's figures and a required return above the bond yield. Compare model values with market prices and the two required returns, and close with a recommendation.
Inside the FNCE 4101 Week 4 example
The memo is addressed to an investment committee. Its summary gives $949.93 and $25.77. The bond section explains why the 5.8 percent traded yield, not the 5 percent coupon, sets value, citing Brealey and colleagues, and a table shows $312.96 for the coupons and $636.96 for the face value. The share section applies Gordon's model, derives growth from retention and return on equity and builds the required return from a risk-free rate, beta and premium. The comparison section finds the share model value 14 percent below market and computes implied growth and implied required return, then explains the 4-point return gap, citing Damodaran. The recommendation adds a beta sensitivity.
Where the marks sit in the FNCE 4101 Week 4 rubric
Valuation memos are graded on correct method, sourced inputs and clear comparison. The bond must be valued at a market yield, with coupons and face value discounted correctly, and the memo should explain why a bond trades below or above face. The share value must use a derived growth rate, not an assumed one, and a required return consistent with the bond's. Strong memos compare model values with market prices and work backward to the assumptions the price implies. The two required returns should be compared and the gap explained. A memo that leads with its answers and closes with a defensible recommendation meets the course standard.
Common FNCE 4101 Week 4 mistakes, and how to avoid them
For the bond, list face value, coupon in dollars, years left and the yield from a recent quote. Discount the coupons as an annuity and the face value as a single sum, then add. If your answer is above face, check whether the yield is below the coupon. For the share, find the last dividend and grow it one year. Derive growth from retention times return on equity. Build the required return from a risk-free rate, beta and premium. Then compare with the market price and ask what growth the price implies. Common errors are using the coupon as the yield and assuming a growth rate. Share the company you are valuing and we can work through it. Keep the memo to two pages; the committee wants the two values, the reasons and a decision.
Get a FNCE 4101 Week 4 example written to your instructions
The Week 4 prompt and the posted rubric are the whole intake, and the memo prices whichever instruments your case names. First custom sample free, delivered inside 24-48 hours. Bond terms from the case appear in the exhibit exactly as the prompt states them, down to the day count.
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FNCE 4101 Week 4 questions, answered
Where can I find a free FNCE 4101 Week 4 sample paper?
The bond and share valuation memo is reproduced on this page, open to all.
What is the bond worth in the FNCE 4101 Week 4 memo?
$949.93, discounting $50 annual coupons and $1,000 at maturity at the 5.8 percent traded yield.
Why is the bond below face value?
Its 5 percent coupon is below the 5.8 percent return investors now require.
What is the share worth under the dividend model?
$25.77, from a $1.24 expected dividend, 5.0 percent growth and a 9.8 percent required return.
What does the $30 market price imply?
Growth of about 5.7 percent at a 9.8 percent required return, faster than retention and return on equity support.