Question
The market price of a Louis ordinary share is $15 (with 5,000,000 shares outstanding, the next annual dividend is expected to be $1.25 and the
The market price of a Louis ordinary share is $15 (with 5,000,000 shares outstanding, the next annual dividend is expected to be $1.25 and the dividend is expected to grow at 4% forever): the bonds are currently selling for $920 (semi-annual coupon payments of $30; maturing in 20 years; 50,000 bonds in the market; the yield to maturity 6.734%); and a preferred share currently is $25 (paying dividends of $3 in perpetuity, 100,000 shares outstanding). The tax rate is 40%. 1. What is the market value of the ordinary share? (1 mark) 2. What is the market value of the debt? (1 mark) 3. What is the market value of the preference share? (1 mark) 4. What is the return on the ordinary share? (1 mark) 5. What is the return on the preference share? (1 mark) 6. What is the company's WACC? (1 mark)
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