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Debentures were issued at an annual pre-tax coupon rate of 11.11% redeemable at end of 8 years. 3 of 8 years have already expired and similar debentures are currently yielding at an annual pre-tax coupon rate of 13.89% in the market. The debenture value is R15 000 000.
How would i go about getting the value of this debenture at market value in order to calculate my WACC? (MVd)
WACC formula;
(Ke x MVe) + (Kp x MVp) + (Kd x MVd) / MVe + MVp + MVd
Again – you must ask this sort of question in the Paper F9 forum. It is not in the syllabus for Paper F2.
The market value is the present value of the future receipts ( interest of 11.11 per year for 5 years, and repayment at par) discounted at the investors required rate of return (13.89%).
I don’t know what exam you are taking, but if calculations like this are required in your exam you must watch the relevant free Paper F9 lectures – I obviously cannot type them all out here.
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