A) A company has issued 7% convertible bonds which are due to be redeemed in eight...

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A) A company has issued 7% convertible bonds which are due to be redeemed in eight years time. They are currently quoted at K107 = per K100 nominal. The bonds can be converted into 20 shares in six years time. The share price is currently K6 = and is expected to grow at a rate of 6% per year. Assume a 30% rate of tax. Required: Calculate the cost of convertible debt for the company above. B) The following is the extract from the balance sheet for Mporokoso PLC. Balance sheet as at 30 June 2018 Ordinary share capital Issued 3 000 000 shares of K1 Reserves 7% debentures Dividend Below is a record of dividend payments in the last 5 years Dividend Paid (K'000) 2014 620 2015 680 2016 740 K'000 3000 6542 9 542 1300 2017 740 2018 810 The current (1 July 2018) market value of Mporokoso PLC ordinary share is K3. 27 per share cum div. An annual dividend of 810 000= is due for payment shortly. The debentures are redeemable at per in ten years time. Their current market value is K77.10 per debenture Annual interest has just been paid on debentures. There have been no issues or redemption of ordinary shares or debentures during the past five years. The current rate of corporation tax is 30% assume that there have been no changes in the system or rates of taxation during the last five years Required: Calculate the cost of capital for Mporokoso PLC using market values A) A company has issued 7% convertible bonds which are due to be redeemed in eight years time. They are currently quoted at K107 = per K100 nominal. The bonds can be converted into 20 shares in six years time. The share price is currently K6 = and is expected to grow at a rate of 6% per year. Assume a 30% rate of tax. Required: Calculate the cost of convertible debt for the company above. B) The following is the extract from the balance sheet for Mporokoso PLC. Balance sheet as at 30 June 2018 Ordinary share capital Issued 3 000 000 shares of K1 Reserves 7% debentures Dividend Below is a record of dividend payments in the last 5 years Dividend Paid (K'000) 2014 620 2015 680 2016 740 K'000 3000 6542 9 542 1300 2017 740 2018 810 The current (1 July 2018) market value of Mporokoso PLC ordinary share is K3. 27 per share cum div. An annual dividend of 810 000= is due for payment shortly. The debentures are redeemable at per in ten years time. Their current market value is K77.10 per debenture Annual interest has just been paid on debentures. There have been no issues or redemption of ordinary shares or debentures during the past five years. The current rate of corporation tax is 30% assume that there have been no changes in the system or rates of taxation during the last five years Required: Calculate the cost of capital for Mporokoso PLC using market values

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a The cost of convertible debt for the company is K6571 The cost of convertible debt K107 K107 K100 ... View the full answer