Find the average cost of retained earnings. - The stock price had risen from its initial value of $10 to its current level of $35 per share. There were currently 5 million shares outstanding. -The company issued 30-year bonds at par with a face value of $1000 and a coupon rate of 10% per year, and managed to raise $40 million for expansion. Currently, the AA rated bonds had 25 years left until maturity and were being quoted at 91.15% of par. Assumptions: 1. New debt would cost about the same as the yield on outstanding debt and would have the same rating. 2. The firm would continue raising capital for future projects by using the same target proportions as determined by the book values of debt and equity 3. The equity beta (1.5) would be the same for all the divisions. 4. The growth rates of earnings and dividends would continue at their historical rate 5. The corporate tax rate would be 34%. 6. The flotation cost for debt would be 5% of the issue price and that for equity would be 10% of selling price
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:
Find the average cost of
- The stock price had risen from its initial value of $10 to its current level of $35 per share. There were currently 5 million shares outstanding.
-The company issued 30-year bonds at par with a face value of $1000 and a coupon rate of 10% per year, and managed to raise $40 million for expansion. Currently, the AA rated bonds had 25 years left until maturity and were being quoted at 91.15% of par.
Assumptions:
1. New debt would cost about the same as the yield on outstanding debt and would have the same rating.
2. The firm would continue raising capital for future projects by using the
same target proportions as determined by the book values of debt and
equity
3. The equity beta (1.5) would be the same for all the divisions.
4. The growth rates of earnings and dividends would continue at their
historical rate
5. The corporate tax rate would be 34%.
6. The flotation cost for debt would be 5% of the issue price and that for
equity would be 10% of selling price
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