Question
Question 4 ( 11 marks) The following information is available for the capital structure of TestraQ Group: Debt: $3,500,000 par value of outstanding corporate bonds
Question 4 (11 marks)
The following information is available for the capital structure of TestraQ Group:
Debt: $3,500,000 par value of outstanding corporate bonds that pay a semi-annual 11.5% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has a face value of $1,000 and will mature in 30 years.
Ordinary shares: 75,000 outstanding ordinary shares which just paid a $4.50 dividend per share in the current financial year. The firm is maintaining 9% annual growth rate in dividends, which is expected to continue indefinitely.
Prefered share: 42 000 preference shares with a 13% fixed dividend rate, face value of $100, market price of $123.
Required: Complete the following tasks:
B. Calculate the current market value of the ordinary share of the TestraQ Group if the average return of the shares in the same industry is 13.5%? (2 marks)
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