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Question 4c i

GWW Co is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:

year2009201020112012
profit after tax ($m)8.58.99.710.1
total dividends ($m)5.05.25.66.0

Statement of financial position information for 2012

$m$m
non-current assets91.0
current assets
inventory3.8
trade receivables4.58.3
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total assets99.3
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equity finance
ordinary shares20.0
reserves47.267.2
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non-current liabilities
8% bonds 25.0
current liabilities7.1
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total liabilities99.3
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The shares of GWW Co have a nominal (par) value of 50c per share and a market value of $4•00 per share. The cost of equity of the company is 9% per year. The business sector of GWW Co has an average price/earnings ratio of 17 times. The 8% bonds are redeemable at nominal (par) value of $100 per bond in seven years’ time and the before-tax cost of debt of GWW Co is 6% per year.

The expected net realisable values of the non-current assets and the inventory are $86•0m and $4•2m, respectively. In the event of liquidation, only 80% of the trade receivables are expected to be collectible.

Required:

Calculate the before-tax market value of the bonds of GWW Co