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A company Zeta has just declared a dividend of Rs 6 per share. The… A company Zeta has just declared a dividend of Rs 6 per share. The company is expected to increase its dividend per share at 12% pa for the next 3 years and thereafter reach a stable growth rate of 5% . The current financial information of the company are as follows ? The stock is currently trading at Rs 90 per share ? Face value of share Rs 10 ? Number of outstanding shares 50 million ? NOPAT for the year Rs 400 million ? Shareholders equity at the beginning of the year Rs 5 billion ? Beta of the company 1.2 ? Yield of 10 year Government bond – 6.5% ? Credit rating of the bond – AA ? Credit risk premium for AA rated bonds – 250 bps ? Par value of outstanding bonds – Rs 500 million ? Face value per bond – Rs 1000 ? Coupon rate = 10% pa payable yearly ? Remaining maturity of the bonds = 3 years ? The bond will be redeemed at par on maturity  Equity risk premium for India – 7% ? Marginal tax rate is 25% Using the same information as given in problem 1 , calculate the market value of the bonds . Assume the yield to maturity = risk free rate + credit risk premium Business Finance FINANCE 101

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