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Dear Sir,
Can you please advice why the answer is $122.34 and not $115.63, why corporation tax has been ignored ?
A 9% redeemable loan note in ATV Co is due to mature in 3 years time at a premium of 15%, or convertible into 25 ordinary shares at that point. The current share price is $4, expected to grow at 10% per annum. ATV pays corporation tax at a rate of 30%.
What is the current market value of the loan note if loan note holders require a 10% return?A $108.75
B $115.63
C $102.03
D $122.34The market value is determined by the investors and will therefore be the present value of their receipts discounted at the their required return.
Corporation tax is of no relevance to the investors – only to the company!
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