You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluatethree alternative proposals financing expansion. The options are:

to issue a bond redeemable in 20 years

to issue a bond redeemable in 50 years

or to issue new shares.

The details of the proposed alternative bonds and their expected market values are as follows:

A 20-year bond

B 50-year bond

Face Value of each bond

A 100

B100

Nominal Interest Rate

A 3.5%

B 3.5%

Predicted market price of bond

A 125

B 85

Scylace plc has ordinary shares with a nominal value of 1 each listed on the London Stock Exchange.

The market price of 1 Scylace ordinary shares is 400p

Over the last year, Scylace has paid a dividend of 14.00p per share.

The directors are expecting the company to pay dividends of 24.75 per share over the next year and expect dividends to grow at a constant percentage rate for the foreseeable future.

Calculate the predicted yield to redemption on the 50-year bond

Calculate the dividend yield for Scylace plc.

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