Questions

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.

• 1. What is the real risk-free rate for AlphaGet using the fisher rule?
  2. What is the cost of debt for AlphaGet?
  3. What is the expected price of AlphaGet's common share?
  4. What is the expected dividend next year for AlphaGet?
  5. What is the value of Bond C of AlphaGet?
  6. What is the value of Bond B for AlphaGet?
  7. What is the cost of equity for AlphaGet?
  8. What is the expected price of AlphaGet's common share assuming that AlphaGet's dividends are expected to grow by 5% perpetually instead of just for the first five year?
  9. What is the value of Bond A for AlphaGet?
  10. What is the equity risk premium of AlphaGet?