a. A corporate bond has been issued on January 1, 2005, that will mature on January...
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a. A corporate bond has been issued on January 1, 2005, that will mature on January 1. 2025. The annual coupon payment rate is 5% and has a par value of RM1,000. If Pluto Berhad plans to buy the bond on January 1, 2017, what is the value of the bond with an expected rate of return of 3%? b. Kejora Berhad is planning to expand its business, and it needs to raise up its capital to RM40 million. It plans to issue 20 million shares with a market value of RM0.50 per share, and the remaining of RM30 million will be debt financing through bonds. The par value and market value of each bond are RM1,000. The bonds pay annual interest before tax of 5%. The yield on risk-free investment is 2% per year and the equity market risk is approximately at 10% per year. The equity beta of the firm is 1.2. The firm pays taxation at an annual rate of 30%. From the above information, you are required to calculate: i. the after-tax cost of debt. ii. the cost of firm's equity. iii. the weighted average cost of capital based on your answers in part (i) and (ii). a. A corporate bond has been issued on January 1, 2005, that will mature on January 1. 2025. The annual coupon payment rate is 5% and has a par value of RM1,000. If Pluto Berhad plans to buy the bond on January 1, 2017, what is the value of the bond with an expected rate of return of 3%? b. Kejora Berhad is planning to expand its business, and it needs to raise up its capital to RM40 million. It plans to issue 20 million shares with a market value of RM0.50 per share, and the remaining of RM30 million will be debt financing through bonds. The par value and market value of each bond are RM1,000. The bonds pay annual interest before tax of 5%. The yield on risk-free investment is 2% per year and the equity market risk is approximately at 10% per year. The equity beta of the firm is 1.2. The firm pays taxation at an annual rate of 30%. From the above information, you are required to calculate: i. the after-tax cost of debt. ii. the cost of firm's equity. iii. the weighted average cost of capital based on your answers in part (i) and (ii).
Expert Answer:
Answer rating: 100% (QA)
a To calculate the value of the bond on January 1 2017 we can use the present value formula for a bond Value of Bond Coupon Payment 1 Rate of Returnn ... View the full answer
Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
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