How do i find the Market value of debenture
R1 200 000 8% debentures due in 6 years’ time and the current yield-to-maturity is 6%
Homework Answers
Calculation of WACC by using Growth model for calculation of ke-
ke= DPS1/P0 +g
DPS1= DPS0(1+g)
=0.30(1+.13)
=.339
Ke = (.339/4.5) +.13
=20.5%
Kp= 14%
Kd=Interest rate(1-tax)
=8(1-.3)
=5.6%
Kl= 13(1-.3)
=9.1%
| Capital | MV | Weight | cost | w×c |
| Equity | 9000000 | .486 | 20.5 | 9.963 |
| Reserves | 5000000 | .270 | 20.5 | 5.535 |
| Debt | 1200000 | .065 | 5.6 | .364 |
| Preference share capital | 2500000 | .135 | 14 | 1.89 |
| Bank loan | 800000 | .043 | 9.1 | .391 |
WACC= 18.143%
CALCULATION OF WACC IF KE IS CALCULATED USING CAPM APPROACH-
ke= rf+ beta(market risk premium)
= 5+1.7(8)
=18.6%
Kd, kl, kp will remain same.
Capital weight cost w×c
Equity .486 18.6 9.04
WACC under such =18.143(from above) -9.963(calculated using growth model -eliminated)
+9.04(required)
=17.22%
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