The finance director of Coral Co has been asked to provide values for the companys equity and loan notes. Coral Co is a listed company and has the following longterm finance:

$m Ordinary shares = 7.8

7% Convertible loan notes = 8.0

The ordinary shares of Coral Co have a nominal value of $0.25 per share and are currently trading on an ex dividend basis at $7.10 per share. An economic recovery has been forecast and so share prices are expected to grow by 8% per year for the foreseeable future.

The loan notes are redeemable after six years at their nominal value of $100 per loan note, or can be converted after six years into 10 ordinary shares of Coral Co per loan note. The loan notes are traded on the capital market.

The beforetax cost of debt of Coral Co is 5% and the company pays corporation tax of 20% per year.

Required:

(a) What is the equity market value of Coral Co (to two decimal places)?

(b) Assuming conversion, what is the market value of each loan note of Coral Co?