2. Whale Wash Limited issued eleven-year bonds one year ago at a coupon rate of 7.5%. The bonds have a face value of $150,000 and make semi-annual payments. It the YTM on the bonds is 8.6% p.al, what is the current bond price?
2. Whale Wash Limited issued eleven-year bonds one year ago at a coupon rate of 7.5%. The bonds have a face value of $150,000 and make semi-annual payments. It the YTM on the bonds is 8.6% p.al, what is the current bond price?
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 19PROB
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Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
Transcribed Image Text:2. Whale Wash Limited issued eleven-year bonds
one year ago at a coupon rate of 7.5%. The
bonds have a face value of $150,000 and make
semi-annual payments. It the YTM on the bonds
is 8.6% p.al, what is the current bond price?
3. Why does the value of a share depend on a
dividend?
4. Perth Limited has just paid an annual dividend
per share of $0.75. The firm expects that
dividends will grow at a rate of 8% pa for the next
three years, before settling down to a growth rate
of 5% pa forever. The firm's required rate of
return is 12%. Estimate the value of Perth Ltd's
Transcribed Image Text:7:38
Murdoch Pty Ltd is considering thre...
Q&A
Cash Flows
1. Murdoch Pty Ltd is considering three
mutually exclusive projects. The initial cash
outflow and after-tax cash inflows
associated with each project are show in
the following table:
Initial Cash
Outflow
Cash Inflows
Years 1-5
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Project
X ($)
Q
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Project
Y ($)
50,000 100,000 115,000
Project
Z ($)
27,000 41,000 43,000
A) Calculate the payback period for each period
B) Calculate the NPV of each project assuming,
that the company has a cost of capital equal to
13%
C) Calculate IRR for each project.
D) Summarise the preferences dictated by each
measure, and indicate which project you would
recommend. Explain why.
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