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:

1. Calculate the current price of the corporate bond for the TestraQ Group? (3 marks)