Use the Data Provided on Cadbury to Answer the Question

question 55

Multiple Choice

Use the data provided on Cadbury to answer the question below.The risk free rate is 4.25%.The expected return on the market portfolio is 9.75%.The corporate tax rate is 40%.The face value of Cadbury's outstanding bonds is 2.450 billion pounds sterling.The coupon rate on Cadbury's bonds is 4.5%.Assume that the bonds pay annual coupons.The yield to maturity on Cadbury's bonds is 4.5%.Cadbury's bonds mature in 7 years.Cadbury has 1.650 billion common shares outstanding.The market price of Cadbury's common shares as of Dec 31,2008 is 6.25 pounds sterling.Cadbury's Beta is 0.8.What is the market value of Cadbury's bonds?

• A) £0.13B
• B) £1.65B
• C) £1.80B
• D) £2.45B
• E) £2.49B

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Definitions:

Accounts Payable

Represents the amount a company owes to suppliers or vendors for goods or services received that haven't been paid for yet.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product.

Uncollectible

Debt or receivables that are considered impossible to collect, potentially due to the debtor's inability to pay.

Budgeted Cash Disbursements

Budgeted cash disbursements are forecasted cash payments during a specific period, part of cash flow planning.