Question 3 [25 Marks] 3.1 Your company was in need of R5 million for expansion purposes. You decided to issue semi-annual R1 000 bonds which pay a coupon of 10% for a 15-year period. A year after the bonds were issued, the interest rate in the market increased by 1.5%. Required a) What was one bond worth one year after it was first issued? [5 Marks) b) If your company issued 1 500 bonds at par in the first year, how many would you still have to sell at the new present value? [5 Marks] 3.2 Bokke's management anticipates that after five years of paying a constant dividend of R2 per year, they will be able to secure new markets. Management thus feels that, commencing with the dividend in year 6, dividends should grow at a rate of 20% per annum for two years (i.e., in years 6 and 7); then there should be 18% growth for one year (i.e., in year 8), settling down thereafter to a constant growth of 10% per annum indefinitely. The required return has increased to 20% per annum. You are required to calculate the price of Bokke's shares today [10 Marks] 3.3 Charlie's Angels Ltd has the following statement of financial position: Equity R750 000 Non-current assets R250 000 Cash R500 000 The company has 50 000 shares in issue. The company has just declared a R1,50 dividend per share. The ex-dividend date is the day after tomorrow. Required: a) What is the share selling for today? [1 Mark] b) What will the share price be in two days' time? (1 Mark] c) How will the statement of financial position change after the dividends are paid? [3 Marks) Question 3 [25 Marks] 3.1 Your company was in need of R5 million for expansion purposes. You decided to issue semi-annual R1 000 bonds which pay a coupon of 10% for a 15-year period. A year after the bonds were issued, the interest rate in the market increased by 1.5%. Required a) What was one bond worth one year after it was first issued? [5 Marks) b) If your company issued 1 500 bonds at par in the first year, how many would you still have to sell at the new present value? [5 Marks] 3.2 Bokke's management anticipates that after five years of paying a constant dividend of R2 per year, they will be able to secure new markets. Management thus feels that, commencing with the dividend in year 6, dividends should grow at a rate of 20% per annum for two years (i.e., in years 6 and 7); then there should be 18% growth for one year (i.e., in year 8), settling down thereafter to a constant growth of 10% per annum indefinitely. The required return has increased to 20% per annum. You are required to calculate the price of Bokke's shares today [10 Marks] 3.3 Charlie's Angels Ltd has the following statement of financial position: Equity R750 000 Non-current assets R250 000 Cash R500 000 The company has 50 000 shares in issue. The company has just declared a R1,50 dividend per share. The ex-dividend date is the day after tomorrow. Required: a) What is the share selling for today? [1 Mark] b) What will the share price be in two days' time? (1 Mark] c) How will the statement of financial position change after the dividends are paid? [3 Marks)
