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10% redeemable loan note. Redeemed at 5 year at 15% premium or convert to 50 share.
MV of share is $3. Corporate tax 30% .Cost of capital 10%in this question when calculating the market value should I have to adjust tax with annual interest payment like shown below
$100*10% = $10*0.70 = $7
No.
The market value is the present value of the expected receipts discounted at the investors required rate of the return. The investor is not affected by company tax and so tax is not relevant.
Tax is only relevant when calculating the cost of debt.
I do suggest that you watch my free lectures on the valuation of securities, because I stress this point and it is very very often asked in the exam.
(The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.)
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