the number of shares of the firm. (c) When a warrant is exercised, the number of

Question

the number of shares of the firm. (c) When a warrant is exercised, the number of shares d decreases. When a call optio exercised the number of shares increases. (d) There are no differences between a warrant and a (e) I choose not to answer. 30. Hemaly plc is trying to dertermine its cost of debt. The fim has a debt ise onsual payments 5 years to maturity that is quoted at 107 firm has a debt issue outstanding with per cent of face value. The issue makes annual payments and the coupon is 7 per cent annually. Assume the face value of the des What is the company's pre-tax cost of debt? (a) 5.00%. (b) 5.37%. (c) 7.00%. (d) 9.46%. (e) I choose not to answer. 12

Explanation / Answer

Yield to maturity =[Interest+(face value-price)/years to maturity ]/[(face value+price)/2]

    =[70+ (1000-1070)/5]/[(1000+1070)/2]

    = [70+ (-70/5)]/[2070/2]

    = [70-14]/1035

    = 56/1035

     = .0541 or 5.41%   [approx 5.37%]

correct option is "B"

**market value = 1000*107%=1070

interest =1000*.07=70

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