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this question is from the revision mock exam..need solution
R plc has in issue $400000 8% bonds,redeemable in 5 years time at a premium of 10%.Investors require a return of 12% p.a .The rate of corporation tax is 35%. Wheat is the total market value of debt in issue?
interest = 8 x (1-0.35) capital repayment will be 100×1.1 that will give you the cash flows now discount them with 1-5 years Annuity factor for interest using from discount table and for capital repayment 5th discount factor , add the present values you will get MV , for total market value of debt , find the number of bonds by 400000/100 then multiply it with whatever total Present value you obtained ^_^
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