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June 2015 question 4 a
Can you explain me how to calculate the redemption price of loan notes ?
And also the ones after that
It’s very confusing …The question says they are redeemed at a 5% premium to the market price.
The market price is given in the question as $104. So repaying at a premium of 5% means they repay 104 x 1.05 = $109.20 per $100 nominal.
How to calculate nininal value of loan notes redeemed
Before tax saving
After tax saving
Earnings after redeeming
This part is too confusingYou work out how many loan notes are redeemed, and then you multiply by $100 because the nominal value of each loan note is $100.
The saving is the saved interest on the nominal value of the load notes received – that will increase the taxable profit.
That will mean they will pay more tax, and so the after tax saving is the interest saving less the tax on it.
The earnings are whatever is left at the end.
(These last three things are really financial accounts knowledge)
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