BlackCo has in issue 5% irredeemable loan otes, nominal value of $100 per loanote, on which interest is shortly be paid. Black Co has a before-tax cost of debt of 10% and corporation tax is 30%
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$55 $50 $75 $40
I got $50 , but i didn't get why they add $5. I calculated the value based on investor's perspective. bt it seems they got answer based on company's perspective. I'm confused about the question
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Business valuation
3y ago#1The answer is based on the investors perspective.
It is because the question says that the interest is shortly to be paid, and so we need a cum interest value.
The ex interest value is indeed $50, but they are going to also receive interest immediately of $5, which give the total present value (and therefore the market value) of $55.
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