Debt: $3,500,000 par value of outstanding bond that pays annually 10% coupon rate with an annualbefore-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20years.Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each shareis $100. The firm plan just paid a $8.50 dividend per share. The firm is maintaining 4% annual growthrate in dividends, which is expected to continue indefinitely.Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed dividendrate of 12%.The firm's marginal tax rate is 30%. Calculate the current price of the preferred share if the average return of the shares in the sameindustry is 10%
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Debt: $3,500,000 par
before-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20
years.
Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each share
is $100. The firm plan just paid a $8.50 dividend per share. The firm is maintaining 4% annual growth
rate in dividends, which is expected to continue indefinitely.
Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed
rate
The firm's marginal tax rate is 30%.
Calculate the current price of the
industry is 10%
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