In order to estimate FVW$\text{'}$s cost of debt, you need to calculate a weighted average of its cost of current

debt and its cost of non$-$current debt. The cost of non$-$current debt is just the yield on the on the bond

described above, so you need to figure out the cost of current debt. You begin by observing that FVW

paid $$698,000$ in interest in $2023.$ When you look at the balance sheet, you note that the only liabilities

that charge interest are short$-$term loans $($part of current liabilities$)$ and long$-$term debt $($part of non$-$

current liabilities$).$ Since long$-$term debt is the above$-$mentioned bond, if you subtract its annual coupon

for $2023$ from the total amount of interest paid during the year, you will obtain the amount of interest

FVW paid on its short$-$terms loans. You decide to convert this amount into an interest rate and use it

as the cost of current debt.

The worksheet Question $2$ provides a space for you to estimate FVW$\text{'}$s cost of current debt. Estimate

its overall cost of debt as a weighted average of the costs of its current and non$-$current debt. State the

value in your report and explain how you obtained it$.$ Be sure to explain how you derived the weights

that were used to calculate the weighted average above. $\backslash$table$[[($All amounts in $$^(\text{'})000),2023],[$Cash$,4,477],[$Accounts receivable,$5,619],[|$ Inventory,$9,555],[$Other current assets,$473],[\backslash$table$[[$Total current assets$]],20,124],[$Inventory$,10,689],[$Proprty$,$ plant and equipment,$14,955],[$Right$-$of$-$use assets,$4,388],[$Agricultural assets,$327],[$Intangible assets,$12,988],[$Deferred tax assets,$1,641],[$Other non$-$current assets,$571],[$Total non$-$current assets,$45,559],[$Total assets,$65,683],[$Accounts payable,$7,489],[$Current tax liabilities,$850],[$Provisions$,760],[$Short$-$term loans,$1,098],[$Other current liabilities,$99],[$Total current liabilities,$10,296],[$Long$-$term debt,$15,009],[$Deferred tax liabilities,$3,424],[$Other non$-$current liabilities,$210],[$Total non$-$current liabilities,$18,643],[\backslash$table$[[$Total liabilities$]],28,939],[$Contributed equity,$34,912],[$Accumulated retained earnings,$1,832],[$Total equity,$36,744]]$

$\backslash$table$[[($All amounts in $$^(\text{'})000),2023],[$Revenue$,28,770],[$Cost of sales,$(17,012)],[$Gross profit,$11,758],[$Selling expenses,$(2,414)],[$Marketing expenses,$(1,353)],[$Administration expenses,$(1,590)],[$Other expenses,$(711)],[$Depreciation$,(1,437)],[$EBIT$,4,253],[$Finance income,$121],[$Finance costs,$(698)],[$Profit before tax,$3,676],[$Income tax,$(965)],[$Net profit,$2,711]]$ The first step in determining FVW$$s WACC is to estimate the market value of its debt. It is generally safe to assume that the market value and book value of current debt are the same, since they should be paid off within a year. However, the market value of non$-$current debt can differ from its book value. FVW$$s non$-$current debt consists of a single privately placed bond issue with a total face total value of $$15,500,000$ that pays a semi$-$annual coupon of $4\mathrm{.}25\%$ p$.$a$.$ The bonds will mature in five years and their yield$-$to$-$maturity is $4\mathrm{.}8\%$ p$.$a$.$ with semi$-$annual compounding.

$1.$ Calculate the price of FVW$$s Bond.

$2.$ Use this value to estimate the market value of the firm$$s debt.

In order to estimate FVW$$s cost of debt, you need to calculate a weighted average of its cost of current debt and its cost of non$-$current debt. The cost of non$-$current debt is just the yield on the on the bond described above, so you need to figure out the cost of current debt. You begin by observing that FVW paid $$698,000$ in interest in $2023.$ When you look at the balance sheet, you note that the only liabilities that charge interest are short$-$term loans $($part of current liabilities$)$ and long$-$term debt $($part of non$-$current liabilities$).$ Since long$-$term debt is the above$-$mentioned bond, if you subtract its annual coupon for $2023$ from the total amount of interest paid during the year, you will obtain the amount of interest FVW paid on its short$-$terms loans. You decide to convert this amount into an interest rate and use it as the cost of current debt.

$3.$ Estimate its overall cost of debt as a weighted average of the costs of its current and non$-$current debt.

Table$[[$F Fern Valley Wines Balance Sheet$],[($All amounts in $$000),2023],[$Cash$,4,477],[$Accounts receivable,$5,619],[$Inventory$,9,555],[$Other current assets,$473],[$Total current assets,$20,124],[$Inventory$,10,689],[$Property $,$ plant and equipment,$14,955],[$Right$-$of$-$use assets,$4,388],[$Agricultural assets,$327],[$Intangible assets,$12,988],[$Deferred tax assets,$1,641],[$Other non$-$current assets,$571],[$Total non$-$current assets,$45,559],[$Total assets,$65,683],[$Accounts payable,$7,489],[$Current tax liabilities,$850],[$Provisions$,760],[$Short$-$term loans,$1,098],[$Other current liabilities,$99],[$Total current liabilities,$10,296],[$Long$-$term debt,$15,009],[$Deferred tax liabilities,$3,424],[$Other non$-$current liabilities,$210],[$Total non$-$current liabilities,$18,643],[$Total liabilities,$28,939],[$Contributed equity,$34,912],[$Accumulated retained earnings,$1,832],[$Total equity,$36,744]]$