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can you help me , in the below question i didn’t understand how they find the market value of the dept and why is there 2 nominal value is 94 M after the interest rate?
and why MV calculate 107.11/100 * 94
when it come to compare it with conversion value should i use 100 or 94 ?Marble Co is partly financed by 6.5% convertible loan notes with a total nominal value of
$94m. Interest on the loan notes has just been paid and the loan notes have an ex interest
market value of $107.11 per $100 nominal value loan note. At the end of five years, the loan
notes will either be redeemed at nominal value or converted into eight ordinary shares of
Marble Co, per loan note. Future share price growth is expected to be 6% per year. The loan
notes are secured on the non-current assets of Marble CoConvertible loan notes
After-tax interest payment = 6·5 x (1 – 0·26) =$4·81 per loan note
Conversion value = 11·09 x 1·065 x 8 = 14·84 x 8 = $118·73 per loan note
The conversion value of $118·73 per loan note is greater than the redemption value of $100·00 per loan note and, as shareholders are assumed to choose the option that maximises their wealth, conversion is expected to occur.
Then use IRR to find cost of debt.
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