Silver Limited, a producer of electricity using biomass, issued 15,000 bonds three years ago with the following terms: • Par value = $1,000 • 7% coupon (paid semi-annually) • 10 years to maturity Last year, dividends of $4.00 per share was paid, and it is expected to grow at 5% per year for the next four years. Given the adoption of cleaner energy, dividends are expected to decline 3% (effective and starting from the fifth year) per year to perpetuity. Currently, Silver Limited shares are trading at $35 per share and the risk-free rate is 4%. Assume the appropriate discount rate for Silver Limited’s bonds and equity is 9% and 15% respectively. Show me step by step with formulas on how should i Appraise the market value of the bonds issued by Silver Limited today.

Silver Limited, a producer of electricity using biomass, issued 15,000 bonds three years ago with the following terms: • Par value = $1,000 • 7% coupon (paid semi-annually) • 10 years to maturity Last year, dividends of $4.00 per share was paid, and it is expected to grow at 5% per year for the next four years. Given the adoption of cleaner energy, dividends are expected to decline 3% (effective and starting from the fifth year) per year to perpetuity. Currently, Silver Limited shares are trading at $35 per share and the risk-free rate is 4%. Assume the appropriate discount rate for Silver Limited’s bonds and equity is 9% and 15% respectively. Show me step by step with formulas on how should i Appraise the market value of the bonds issued by Silver Limited today.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 22P

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Silver Limited, a producer of electricity using biomass, issued 15,000 bonds three years ago with the following terms: • Par value = $1,000 • 7% coupon (paid semi-annually) • 10 years to maturity Last year, dividends of $4.00 per share was paid, and it is expected to grow at 5% per year for the next four years. Given the adoption of cleaner energy, dividends are expected to decline 3% (effective and starting from the fifth year) per year to perpetuity. Currently, Silver Limited shares are trading at $35 per share and the risk-free rate is 4%. Assume the appropriate discount rate for Silver Limited’s bonds and equity is 9% and 15% respectively. Discuss the impact on the Silver Limited’s bond price if a call provision was included and the credit rating changed from Baa (on issuance) to A. No computations are required
Silver Limited, a producer of electricity using biomass, issued 15,000 bonds three years ago with the following terms: • Par value = $1,000 • 7% coupon (paid semi-annually) • 10 years to maturity Last year, dividends of $4.00 per share was paid, and it is expected to grow at 5% per year for the next four years. Given the adoption of cleaner energy, dividends are expected to decline 3% (effective and starting from the fifth year) per year to perpetuity. Currently, Silver Limited shares are trading at $35 per share and the risk-free rate is 4%. Assume the appropriate discount rate for Silver Limited’s bonds and equity is 9% and 15% respectively. Examine whether I will invest in Silver Limited’s shares today.Need help with how am i suppose to show relevant computations.
Silver Limited, a company that generates electricity using biomass, issued 15,000 bonds three years ago with the following details: $1,000 par value, 7% coupon paid twice a year, and 10 years to maturity. Last year, the company paid out a $4.00 dividend per share, which is expected to grow at 5% annually for the next four years. After that, due to the shift towards cleaner energy, the dividend is projected to decrease by 3% each year indefinitely. Currently, their shares are trading at $35, and the risk-free rate is 4%. The discount rates for the company’s bonds and shares are 9% and 15%, respectively. How would you evaluate the current market value of these bonds? Also, what could happen to their price if a call provision was included and their credit rating improved from Baa to A? No calculations needed—just a brief discussion. Lastly, based on some calculations, would you consider investing in their stock today?
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ABC company has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is 60p per share, and it expects that its next dividend per share, payable in one year’s time, will be 65p per share.The capital structure of the company is as follows(image attached).Bond A will be redeemed at nominal value in ten years’ time and pays annual interest of 10%. The cost of debt of this bond is 11.5% per year. The current ex-interest market price of the bond is £96.02. Bond B will be redeemed at nominal value in four years’ time and pays annual interest of 7%. The cost of debt of this bond is 7.5% per year. The current ex-interest market price of the bond is £105.04. ABC has a cost of equity of 15%. Ignore taxation.Calculate the following: 1. Ex-dividend share price, using the dividend growth model. 2. Capital gearing (debt divided by debt plus equity) using market value. 3. Market value weighted average cost of…
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