Calculate the price of FVW's bond and the overall market value of FVW's debt. Clearly explain your assumptions, method, and calculations.
EXtra info:
The first step in determining FVW’s WACC is to estimate the market value of its debt. It is generally safe
to assume that the market value and book value of current debt are the same, since they should be
paid off within a year. However, the market value of non-current debt can differ from its book value.
FVW’s non-current debt consists of a single privately placed bond issue with a total face total value of
$15,500,000 that pays a semi-annual coupon of 4.25% p.a. The bonds will mature in five years and their
yield-to-maturity is 4.8% p.a. with semi-annual compounding.
The worksheet Question 1 provides a space for you to calculate the price of FVW’s bond. Use this value
to estimate the market value of the firm’s debt. State this value in your report and explain how you
calculated it. Be sure to explain the assumptions you made and provide details of how you priced the
bonds able[[Fern Valley Wines Balance Sheet],[(All amounts in {:S^(')000),2023],[Cash,4,477],[Accounts receivable,5,619],[Inventory,9,555],[Other current assets,473],[Total current assets,20,124],[Inventory,10,689],[Proprty, plant and equipment,14,955],[Right-of-use assets,4,388],[Agricultural assets,327],[Intangible assets,12,988],[Deferred tax assets,1,641],[Other non-current assets,571],[Total non-current assets,45,559],[Total assets,65,683],[Accounts payable,7,489],[Current tax liabilities,850],[Provisions,760],[Short-term loans,1,098],[Other current liabilities,99],[Total current liabilities,10,296],[Long-term debt,15,009],[Deferred tax liabilities,3,424],[Other non-current liabilities,210],[Total non-current liabilities,18,643],[Total liabilities,28,939],[Contributed equity,34,912],[Accumulated retained earnings,1,832],[Total equity,36,744]]
Fern Valley Wines Balance Sheet
Fern Valley Wines Income Statement
All amounts in S'000)
2023 4,477 5,619 9,555 473 20,124
(All amounts in S'000)
2023 28,770 (17,012) 11,758
Cash Accounts receivable Inventory Other current assets Total current assets
Revenue Cost of sales Gross profit
Selling expenses Marketing expenses Administration expenses Other expenses Depreciation EBIT
(2,414) 1,353) (1,590) (711) (1,437) 4,253
Inventory Proprty, plant and equipment Right-of-use assets Agricultural assets Intangible assets Deferred tax assets Other non-current assets Total non-current assets Total assets
10,689 14,955 4,388 327 12,988 1,641 571 45,559 65,683
Finance income Finance costs Profit before tax
121 (698) 3,676
Income tax Net profit
(965) 2,711
Accounts payable Current tax liabilities Provisions Short-term loans Other current liabilities Total current liabilities
7,489 850 760 1,098 99 10,296
Long-term debt Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities
15,009 3,424 210 18,643 28,939
Contributed equity Accumulated retained earnings Total equity
34,912 1,832 36,744
