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Section B - Case 2: Helios Co
Helios Co operates wind farms across Europe. It is looking to acquire a smaller competitor, Aura Ltd. To assess the acquisition, Helios needs to calculate its own Weighted Average Cost of Capital (WACC) and value Aura Ltd.
Helios Co Data:
Current share price: $4.50
Recent dividend paid (D0): $0.30
Historical dividends:
4 years ago: $0.24
3 years ago: $0.25
2 years ago: $0.27
1 year ago: $0.28
Using the historical dividend growth rate, what is Helios Co's estimated Cost of Equity (Ke) using the Dividend Valuation Model?
ACCA · Question 22 · Business Finance
Section B - Case 2: Helios Co
Helios Co has $10 million of convertible bonds in issue. The bonds have a nominal value of $100, pay an annual coupon of 5%, and are due to be redeemed in 3 years at par. Alternatively, they can be converted into 20 ordinary shares per $100 bond in 3 years.
The current share price is $4.50 and is expected to grow at 6% per year. Investors require a return of 8% on similar non-convertible debt.
What is the expected conversion value of one $100 bond in 3 years' time?
Section B - Case 2: Helios Co
Helios Co has $10 million of convertible bonds in issue. The bonds have a nominal value of $100, pay an annual coupon of 5%, and are due to be redeemed in 3 years at par. Alternatively, they can be converted into 20 ordinary shares per $100 bond in 3 years.
The current share price is $4.50 and is expected to grow at 6% per year. Investors require a return of 8% on similar non-convertible debt.
What is the expected conversion value of one $100 bond in 3 years' time?
Answer options:
$90.00
$100.00
$107.19
$115.00
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