The valuation of securities - The valuation of debt - ACCA Financial Management (FM)

The valuation of securities - The valuation of debt - ACCA Financial Management (FM)
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[@TheSpylines]

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[@charitymatyanga4724]

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[@blackm9063]

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[@gabrielbrewster107]

is the market value here the same as the 'cost of capital' in Performance Management?

[@opentuition]

No it isn't. The market value is the price at which it is bought and sold on the stock exchange (just as for shares, as explained in the lecture on the valuation of shares). The cost of capital is the cost of financing the companies borrowings. Calculations of it are not examinable in Paper PM, but certainly are examinable in detail in the Financial Management paper. You should work through the lectures in the order of the chapters in our free lecture notes. There is an index linking to all of the lectures on our free website.

[@gabrielbrewster107]

@@opentuition Yeah thanks, I think that's my problem. The order of the lectures. Thank you.

[@MSaad-ht7ni]

In question 12 What sir did was that he discounted 1. Coupon rate 8@ 2.487 =19.896 2. Future share price 110. 25@ 0. 751 He discounted the future value of the share option and added it to the coupon rate. If the investor doesn't take the share option y will he get the 110.25@0.751=83.1285 Shouldn't he get 100@0.751=75.1 110.25 is the share option price isn't it? Than y he discounted it and added coupon rate to it?

[@opentuition]

In 3 years time the investor will have the choice of taking $100 cash or taking shares which in 3 years time we expect will be worth $110.25. $110.25 is not a 'share option price' but the estimated value of the shares in 3 years time. As of today the investor will be expecting to take the shares because he/she will get more by taking shares. Therefore the expected future receipts are interest of $8 per year for 3 years and $110.25 in 3 years time. The market value of the debentures is the present value of these expectations discounted at 10%.

[@MSaad-ht7ni]

@@opentuition if he chooses not to convert to shares What will he get? 8@2.487 =19.896 100@0.751=75.1 Total =94.996 Right?

[@Abbas-oj6ne]

from 14:00: Convertible Debt Valuation

[@artanis5163]

8*2.487 = 19.90 ??

[@opentuition]

Correct. It is a silly mistake, however the printed answer in the lecture notes is correct :-)

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[@opentuition]

You are not forced to watch our free lectures!

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[@user-fx1xo1cv1j]

He is consistent with notes and ACCA materials. If you don't understand FM just say it

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