Question 6 Bristol plc has convertible debentures with a coupon rate of 10% in issue trading at 108%. The debentures are redeemable at par in five years time, or convertible at that point into 20 ordinary shares of the firm. The company's current share price is 3.50 and is expected to grow at 6% pa Bristol plc faces a corporation tax rate of 20%. Which of the following is the best estimate of the after tax cost of these debentures? A6% B8% C9% D 10% E 12% Question 7 Bath plc has in issue irredeemable bonds with a coupon rate of 4%, currently trading at 84% cum interest. If the tax rate changes from 25% to 20% for the company, what will happen to the after-tax cost of these bonds? A Increase to 5% B Decrease to 4 25% Cincrease to 4% D Decrease to 3.75% E The ather-tax cost will not change Question 8 Taunton plc exists in a Modigliani and Miller (1958, 1963) world, except that corporate taxes existat the rate of 20%. The firm's operating income before tax and interest is 400,000 p.a. The cost of capital for an all-equity financed firm in this world is 16% pa, and the pre-tax market cost of debt is 4% p.a. Taunton pic has debt in its capital structure with a market value of 1.5 million What is the market value of Taunton plc? A 2 million B 2.3 million C3 million D 3.3 million E 3.5 million