Reference no: EM132956938

Question - After many years of trying, Vodacom has been awarded a licence to operate a small office in Tanzania. The company decided to fund this initiative through the issuance of a bond as opposed to issuing equity. Through the help of RMB investment bank, the company tested the market and confirmed that there is an appetite for its bonds and estimated the coupon that the market will be willing to accept from this bond. In January 2018, the company issued a 7%, 10-year bond with a face value of R10 000 000. The market interest rate at the time of issuance was 5%. Assume that the interest is paid semi-annually on the 31 July and 31 December each year.

Required -

Most companies that are listed on the JSE main board are highly leveraged and they use bonds to finance their operations because, compared to shares, bonds are a cheaper form of financing for this companies. Evaluate this statement.

At what price was this bond issued?

Prepare amortization table for the first five years that the bond is outstanding?

Clearly indicate by use of figures (where possible) the effect of issuing this bond in 2018 and 2019 on the following: i) Interest recorded in the income statement

ii) CFO

iii) CFF

iv) Total liabilities

v) Leverage ratios

vi) Profitability ratios