question archive You have been engaged as a management consultant by Scylace plc, a grocery retail chain
You have been engaged as a management consultant by Scylace plc, a grocery retail chain
Subject:BusinessPrice: Bought3
You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluate three 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
B.£100
Nominal Interest Rate
A. 8.0%
B. 6.5%
Predicted market price of bond
A.£150
B. £120
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 570p
Over the last year, Scylace has paid a dividend of 24.00p 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.
A.Select the correct formula for the predicted yield
B. Calculate the predicted yield to redemption on the 20-year bond.
C. Calculate the predicted yield to redemption on the 50-year bond
D. Select the correct formula for calculating the cost of equity capital for Scylace plc
