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Dear Sir,
The answer includes the following statement regarding issuance of bonds in China:
“However, as with any emerging market, there are risks associated with inward investment and capital entry.”What is meant by this?
Why this has been mentioned regarding the issuance of bonds in China?
I don’t see the direct relationship between issuance of bonds in China and “inward investment and capital entry” themselves.
Please clarify.
It is not to do with the bonds.
The company is considering major expansion into China (and the bonds in part (a) are an issue in the US not in China).
Major investment in China will be inward investment and capital entry.It is not to do with the bonds.
The company is considering major expansion into China (and the bonds in part (a) are an issue in the US not in China).
Major investment in China will be inward investment and capital entry.Thank you very much.
P.S. The issue of bonds in China is also mentioned later in the answer, but the implications are clear: the same transaction costs and higher cost of debt.
Dear sir, why answer has to find the keg and ungear it to find the ke u? Why can’t I use the WACC formula WACC = ke u + ( 1- Dt/ e+d ) work backwards and obtain the keu from there?
Sir , could you please demonstrate the answer using the WACC formulae because the answer I got is different. Thank you very much .
I am really sorry but I answered your previous question too quickly and had not read it properly (I was tired when I replied and I apologise 🙁 )
I have no idea where you have got the formula you have quoted from – it is not the formula for the WACC.
Usually you have two choices – you either use the formula for gearing/ungearing the cost of equity (as in this question), or you use the formula for gearing/ungearing the beta (and from there get the cost of equity).
Both ways give the same result, and it is very unusual for the MM proposition formula to be needed. This is the only question I can remember where you actually needed to use it.Sorry again for confusing you.
In Do-it-yourself Q the current debt is the “10 year syndicated loan of 0.5bn due for retirement in 3 years.”
in solution the currect finance structure indicates the 3 year loan of 0.5bn.
1) Why 3y and not 10y?
2) Has the syndicated loan any meaning in this Q?IN AWP Co Q when calculating the Issue bond price for every year the different, specified spot yield was used.
2) WHy if there is 3 year bond we do not take the spot yield for 3rd year? In Do-it-yourself Q only one rate was chosen.Although the current loan was initially for 10 years, there is only 3 years left for it to run.
In Do it yourself we are calculating the current rate (given there are three years remaining) in AQP we are calculating the issue price.
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