Question 252.5 pts

AlphaGet is currently assessing the value of its securities and have obtained the following information that should provide AlphaGet with the necessary information to estimate the value of its securities:

• Current long-term government securities carry a yield of 6.5% which includes an inflation premium of 1.25%
• Based on the credit rating of AlphaGet of BAA, the estimated credit spread of AlphaGet is at 2.5%
• Utilizing the work of an external expert, beta of AlphaGet is estimated at +1.5 for marginal investors
• Diversified investors in the market is currently demanding a 2.0% premium over government securities

The following are the current instruments issued by AlphaGet:

• Bond A carries a 5-year tenor and will mature in 3 years with a face value of Php250,000 carrying a coupon of 9.0%
• Bond B carries a 10-year tenor and will mature in 5 years with a face value of Php500,000 carrying a coupon of 8.5%
• Bond C carries a 5-year tenor and was just recently issued with a face value of Php500,000 carrying a coupon of 10.0%

AlphaGet had historically paid dividends out at a rate of 10% of its net income. Dividends paid out this year amounted to Php120.00 per share and is expected to grow by 5% per year over the next 5 years before stabilizing at 3.5% perpetually after year five.

What is the cost of debt for AlphaGet?

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Question 262.5 pts

Burgos Co. declared dividends amounting to Php1.50 per share this year out of its Php500,000 net income during the year. The following summarizes the shareholders equity of Burgos Co.:

• Total authorized shares - 500,000 shares
• Issued shares - 100,000 shares
• Treasury shares - 10,000 shares
• Total shareholders' equity - Php2,500,000

Assuming that the price of Burgos Co. is currently trading at Php18.00, what is the expected return on this investment?