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Dear Sir
I am totally confused and I know I am probably over-complicating but for Question 1 (Morada) regarding the 2nd Director’s proposal I fully understand how the Cost of Debt is 3.8% but then is increased by 2.4% because of the extra $70m that will be borrowed.
However what I dont understand is the answer about MVd = BVd = $190m? how can the MV & BV be the same?
Any help would be greatly appreciated.
Thanks
The debt is being issued at a coupon rate of 6.2%, and the required rate of return is also 6.2%.
Therefore the market value (PV discounted at 6.2%) will be the same as the nominal/par value.
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