Reference no: EM132957158

Transpax Ltd hereafter referred to as "Transpax" or "the company", has been operating in the passenger transport industry since 1991. Transpax employs 1 200 employees and operates out of three depots situated in Pretoria, Johannesburg and Cape Town. Transpax has the following instruments in its capital structure:

• Transpax currently has 3 500 bonds in issue with a par value of R90 each. These bonds have 10 years to maturity with a 10% coupon rate. The bonds have a yield to maturity of 9.85% and make annual payments.
• Transpax has 2000 preference shares in issue. The preference shares are non-redeemable and currently trade at R150 per share. The shares pay a fixed annual dividend of R13 per share and have a par value of R100 per share.
• The company has 10 000 shares in issue. The company will pay a dividend of R2 per share in the next year. The company will withhold dividend payments for year two and three. Dividend payments for year two and three will be paid together with year four dividend. The directors of the company predict a dividend growth rate of 10% per annum between year one and four. Thereafter the dividends will grow by 7% per annum into perpetuity. Assume that shareholders require a return of 15%.

Problem 1: Calculate the current value of the bonds