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BI Co has in issue 8% irredeemable bonds quoted at 86% ex interest. The rate of Corporation tax is 25%; personal tax to be ignored. What is the return on investors?
Please don’t simply set me questions! Presumably you have been through the lectures, and so ask what problem you are having, and then I can help.
For irredeemable bonds, the return to investors is interest/market value.
Tax is irrelevant – it is only relevant when considering the cost to the company, not the return to the investor.Again, the free lectures on the cost of debt will help you.
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