F3 test question – valuation

Hello Tutor,

This is question is from Kaplan practice question bank.
I wonder why the answer does not need to subtract the market value of the bond from the $15.6 million?

When we calculate the price per share, why shouldn’t we deduct the bond value from market cap before dividing by the no. of shares?

thanks,
Kenneth

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Question from the kit:

Tanu Inc has 1 million $0.50 par value shares in issues. It generated free cash flow of $1.5 million last year and expects this figure to grow by 4% per annum in the future.

Tanu Inc has a cost of equity of 14% and a WACC of 10%. It has $500,000 of bonds in issue, trading at $80 per $100.

What is the estimated value of a Tanu Inc share?

Ans: $15.60

$1.5m(1.04)/(0.14-0.04) = $ 15.6 million. There are 1 million shares, so $ 15.60 per share.