The finance director of Zigzag Co has been asked to provide values for the company’s equity and loan notes. Zigzag Co is a listed company and has the following long‐term finance: $mn Ordinary shares 7.8 7% Convertible loan notes 8.0 15.8 The ordinary shares of Zigzag Co have a nominal value of $0.25 per share and are currently trading on an ex-dividend basis at $7.10 per share. An economic recovery has been forecast and so share prices are expected to grow by 8% per year for the foreseeable future. The loan notes are redeemable after six years at their nominal value of $100 per loan note or can be converted after six years into 10 ordinary shares of First Co per loan note. The loan notes are traded on the capital market. The before‐tax cost of debt of Zigzag Co is 5% and the company pays corporation tax of 20% per year.

Q. What is the equity market value of Zigzag Co (to two decimal places)?

Q. Assuming conversion, what is the market value of each loan note of Zigzag Co?

Please explain the process as well !

Answer rating: 100% (QA)

To calculate the equity market value of Zigzag Co we need to multiply the number of outstanding ordi... View the full answer