The price of the 6% 20 year bonds of WP is $1100. It has issued 500 bonds to investors, and 10,000 common shares. We know that the 10 year treasury bond rate is .03, the return in the market has been 11 %, and the fluctuation in the price of WP is 20% less than the stock market. If the growth rate of the profit and the dividends of WP is 4%, while the tax rate is 30%and WP pays $5 dividends per share. Derive the COC of WP.
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:
The price of the 6% 20 year bonds of WP is $1100. It has issued 500 bonds to investors, and 10,000 common shares. We know that the 10 year treasury bond rate is .03, the return in the market has been 11 %, and the fluctuation in the price of WP is 20% less than the stock market. If the growth rate of the profit and the dividends of WP is 4%, while the tax rate is 30%and WP pays $5 dividends per share. Derive the COC of WP.
Before tax cost of debt is the yield to maturity of the firm and can be calculated in the excel as below:
Market Value of Bonds is:
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