4)Please answer with workings.. Tqvm Question 4 Wetherby Co is a l.docx

  • No School
  • AA 1
  • 3

This preview shows page 1 - 3 out of 3 pages.

Image of page 1
4)Please answer with workings.. Tqvm Question 4 Wetherby Co is a listed company with 10 million $1 shares in issue. The shares are currently trading at $1.69. Historic dividend growth has been 4% per year, and this is expected to continue in the future. The most recent dividend was 18.45 cents per share. The company is also financed by two different types of bonds, with details as follows: 50,000 (x $100) Redeemable bonds, with a market value of $105. The coupon rate is 6% and redemption is in 5 years at the par value of $100 50,000 x $100) Convertible bonds, with a market value of $90. The coupon rate is 5% and the bond holder can choose to convert each $100 nominal value bond into 80 shares in 3 years' time, or to redeem the bond at its
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 3 pages?

Unformatted text preview: par value. The company's tax rate is 25%. Required: (a) What is the cost of debt associated with the redeemable bonds? (10 marks) (b) What is the value of the conversion option of the convertible bonds? State any assumptions (4 marks) (c) What is the company's cost of equity? (3 marks) (d) The after tax cost of the convertible bonds has been calculated as 22.5%. Using this, and your answers in (a) and (c) above, calculate the company's weighted average cost of capital. (4 marks) le) Briefly explain the two conditions that would be necessary for the company to use its existing company weighted average cost of capital (WACC) as a discount rate for a new project appraisal? (4 marks) (Total 25 marks)...
View Full Document

  • Fall '19

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors