Question $1$

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.

calculate the price of FVW$$s bond. Use this value

to estimate the market value of the firm$$s debt. State this value in your report and explain how you calculated it$.$ Be sure to explain the assumptions you made and provide details of how you priced the

bonds.

Question $2$

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.

Estimate FVW$$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.

Question $3$

The next step is to estimate the market value of FVW$$s equity. The challenge here is that FVW is a private company, so the market value of its equity is not directly observable. To overcome this

challenge, you decide to use a peer firm approach to estimate the market value of equity for FVW$.$ To this end, you select the following three publicly traded comparison firms:

$$ Australian Vintage Ltd $($ASX: AVG$)$

$$ Lark Distilling Co Ltd $($ASX: LRK$)$

$$ Treasury Wine Estates Ltd $($ASX: TWE$)$

Your plan is to calculate the market$-$to$-$book ratios for the comparison firms, and to use some kind of average of those values as a proxy for FVW$$s market$-$to$-$book ratio. This proxy market$-$to$-$book ratio can

then be used to infer a market value of equity for FVW from the book value of its equity. The worksheet Question $3$ provides a space for you to estimate the market value of equity for FVW$.$You can use the Wall Street Journal pages for Australian Vintage, Lark Distilling, and Treasury Wine

Estates to get the information needed to calculate their market$-$to$-$book ratios. You can also use the Yahoo Finance pages for Australian Vintage, Lark Distilling, and Treasury Wine Estates for the same

purpose. State the value you obtained for FVW$$s market value of equity in your report and explain the methodology you used to get it$.$ You should be especially clear about what kind of average market$-$to$-$

book ratio you used for your estimate, and why you chose it$.$ Are some of the comparison firms more relevant than the others for estimating FVW$$s market$-$to$-$book ratio?