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Question revision mock exam opentution
R Plc has in issue $400000 8% bond redeemable in 5 years time at a premium of 10%.Investors require a rate of 12% p.a
The rate of corporation tax is 35%
What is the total market value of debt in issue?
And the answer shows that$364840(present value discounted at investors required rate of return of 12%=$364840
How to get the amount 364840?
in my calculation 44000*0.567=24948
440000-29948=410052
pls provide me right advce to get the amount 364840I explained what you need to do in my previous reply to you!!
The interest is 32,000 a year for 5 years.
The PV of this annuity discounted at 12% is 115,360The redemption is 440,000 in 5 years time.
The PV of this at 12% is 249,480The total PV is 115,360 + 249,480 = 364,840
I have no idea why you should want to subtract the PV of 44,000 in 5 years time from 440,000!!
You really should watch my free lectures on the valuation of securities where all of this is explained.
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