Value of the coupons:
coupon: 50m(0.04 / 2 semi-annual periods per year) = 1m
use PV ordinary annuity to value the coupons
PVoa = PMT[(1 - (1 / (1 + r)^n)) / r]
r = 0.0423 / 2 = 0.02115
n = 15 yrs * 2 times per year = 30
PVoa = 1m{(1 - (1 / 1.02115^30)) / 0.02115]
= 1m[(1 - 0.53372) / 0.02115]
= 1m[0.46628 / 0.02115]
=1m[22.04632]
=22,046,319.89
Add PV of par
50m / 1.02115^30
= 26,686,016.72
Add together to get price: $48,732,336.61
Use that figure for the debt portion to calculate the total capital, and the weight of debt in the capital structure.
Value of equity...
Price per share (Gordon growth model): P0 = D1 / (r - g)
P0 = 2.50 / (0.10 - 0.04)
= $41.67 (rounded) per share * 1m shares = total equity
I'm guessing you know how to do the rest? If not, email me via YA.
Nindo’s Company has a capital structure with debt and equity. Debt - $50 million face value bonds maturing in 15 years with a coupon rate of 4% paid semi-annually. The yield to maturity on these bonds is 4.23%.
Equity - There are 1,000,000 shares outstanding. The investor's return is 10%. The next dividend is $2.5 with a growth rate of 4% into the future.
Tax rate is 35%.
Calculate Nindo’s WACC.
Its just a homework question for practice for my midterm, but I just dont understand the debt portion about face value bonds.
