uala Co is a geared company, with 1 million $0.50 par value shares in issue, and $500,000 of bonds in issue, trading at $80 per $100 of nominal value. It has a money cost of capital of 14%. The company generated free cash flow to equity of $1.5 million in the most recent year and the directors expect this figure to grow by 4% per annum in the future.
What is the estimated value of an KualaCo share?
the answer is 15.6
i don't understand why we didn't include the bond in the calculation?
this is from kaplan course
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business valuation
1y ago#1Because it asks for:
What is the estimated value of an KualaCo share?
A share means equity
Share value is calculated by dividing a company's total equity value by the number of outstanding shares, or more simply, by multiplying the number of shares owned by the current market price per share to find the total value.
Bonds are excluded because share value is based on equity, not debt. You divide total equity value—from discounted free cash flow to equity—by the number of shares. Bonds are a separate claim. I keep my focus clear by using this call answering service to handle distractions while working on such calculations.
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