## (Solved) DLL is a publicly listed company that needs to raise \$10 million for a new investment.

DLL is a publicly listed company that needs to raise \$10 million for a new investment.Â If DLL decided to issue bonds, the bonds will have a face value of \$100, a semi-annual coupon payment of \$5 (annual coupon rate is 10%), a five year term to maturity, and an annual required rate of return of 8% (nominal rate).Â

Â Â Â Â Â Â Â i.Â Â Â Â Â Â Â Â Â Â Â (3 marks)

Â Â Â Â Â ii.Â Â Â Â Â Â Â Â Â Â Â (9 marks)

Calculate the price of the bond.

Â Â Â iii.Â Â Â Â Â Â Â Â Â Â Â (13 marks)

If DLL decides to issue ordinary shares, it is expected to pay a constant dividend of \$1 at the end of each year for five years (dividend of \$1 starts in year 1), after which the dividend is expected to increase at a rate of 10% every year (i.e. the dividend is expected to be \$1.10 in year 6).Â The required return on equity is 12%.Â How many ordinary shares would DLL have to issue?

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