M/s. ABC and company has appointed Mr. A for their financial operations. As first of his task, he has to calculate Intrinsic values and YTMs of preference shares and Debentures.  He catered data of the company which shows that company has 5000000 ordinary shares outstanding, each being traded in the market for 48 Rs. Per share. Initially issues at 250% premium 5 years back. Current cost of equity is 17%. Company has 2000000 in retained earnings, 0.8 million in reserves. Company also has 12%, 80000 debentures outstanding, 80% of which are for 18 years and are being traded in the market for 1120 rs initially issued 4 yaers back for 20 % premium. Remaining are perpetual and being traded in the market for 1020 per debenture and were issued 5 years back on 10% discount. Company also has 14% , 2000000 loan from HBL, 10% 1000000 loan from NBP. Company has two types of preference shares outstanding. One is 9%, 200000, being traded in the market for 135 Rs. Per share initially issued @ 30% premium and callable after 20 years at 20% premium. Other type are 7% 100000 outstanding initially issued @ 10% discount and now being traded @ 122 Rs. Per share. Company pays 40% tax.

Required: - If required rate of return of investors is 16% what should be the intrinsic values of these shares. 

b) if shares and debentures are bought on their current market values what should be their yields?

Answer rating: 100% (QA)

Intrinsic value is the present value of all cash pro... View the full answer