F9 WACC - irredeemable debentures

messedup89
messedup89 Registered Posts: 1,275 Beyond epic contributor 🧙‍♂️
edited June 18 in AAT member discussion
Hi,

Im trying to calculate a WACC. I can work out the equity figures and redeemable debentures, but i am stuck on the irredeemable debentures.

How do i work out the cost and market value?

Market value of 9% irredeemable debentures $110
Total par value of the 9% irredeemable debentures $10m

Thanks

Comments

  • SandyHood
    SandyHood Registered, Moderator Posts: 2,027 mod
    How do i work out the cost and market value?

    How do I work out the cost and market value?

    Find the market value first.
    We know that each bond has a market value of $110
    We know that the par value is $10 millions and each bond has a par value of $100. Dividing the $10 millions by $100 identifies there are 100,000 bonds in issue.
    Market Value 100,000 bonds x $110 per bond = $11 millions

    The cost is the market return
    The bond pays $9.00 interest per $100.00 bond
    As the market value of each bond is $110, then anyone buying a bond will receive $9/$110 = 8.18% return
    Cost of this irredemable debt = 8.18%
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • messedup89
    messedup89 Registered Posts: 1,275 Beyond epic contributor 🧙‍♂️
    Thats great, thank you

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