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Question 3
The 8% $30 million convertible loan note was issued on 1 April, 2010 at par. Interest is payable annually in arrears on 31 March each year.
The loan note is redeemable at par on 31 March, 2013 or convertible into equity shares at the option of the loan note holders on the basis
of 30 equity shares for each $100 of loan note. The company’s finance director has calculated that to issue an equivalent loan note without
the conversion rights it would have to pay an interest rate of 10% per annum to attract investors.
The present value of $1 receivable at the end of each year, based on discount rates of 8% and 10% are:
8% 10%
End of year 1 0·93 0·91
2 0·86 0·83
3 0·79 0·75
What value should appear as the interest charge for the year ended 31 March, 2011
->
As per my understanding;
Eq. Option 1,524
8% loan note 28,476
2,848 I/S
2400 Interest Paid
28,924 LTLAs per course notes answer;
$218,182 and equity $6,903,156
I am confused; pls help sir.I’m again in debt to you! Both answer 3 and answer 4 are incorrect and I cannot even see how I arrived at those figures!
Answer 3 should be:
1,524 equity, finance cost for 2011 should be 2,848, loan on sofp should be 28,923
Answer 4 should be:
4,050 equity, finance cost for 2014 should be 3,676, loan on sofp should be 47,126
Thanks again
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