Estimate the firm equity value per share

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PT Keren Tbk. is planning to issue an eight-year maturity IDR 500,000,000,000 bond with a 10 percent annual coupon rate and paid semi-annually. The firm's finance officer considers that 12 percent is an appropriate annual discount rate.

a) What is a reasonable estimate the PT Keren Tbk could expect from the proceeds of issuing its bonds?

b) What happens if PT Keren Tbk only wants to sell its bond for IDR 510,000,000,000 or above? According to the recent RUPS (Rapat Umum Pemegang Saham), at the beginning of this year, the firm is expected to pay a cash dividend of IDR 40,000 per share at the end of this year. They consider that the firm will attain a sustainable growth rate of 4 percent per annum forever. They consider that 15 percent is an appropriate equity discount rate.

c) Estimate the firm's equity value per share now (at the beginning of this year)d) Recent omicron cases cause two possibilities: 1) The pandemic will become worse (if the omicron symptoms are severe) and 2) The pandemic will become more controllable (if the omicron symptoms are light). Explain what reasonable points are for adjusting their equity valuations in part c) according to those two possibilities?

Reference no: EM133116274

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