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Hi sir i am not sure how to do this qn?
A company has 7% loan note in issue which are redeemable in 7 year’s time at 5% premium to their nominal value of $100 per loan note. The before tax cost of debt of company is 9 % and after tax cost of debt of compang is 6%. What is the current market value of each loan note?
You need to watch my free lectures on the valuation of securities! The value is the present value of the future expected receipts discounted at the investors required rate of return (which is the same as the before tax cost of debt).
Please watch the lectures – you cannot expect me to type them out here 🙂
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.