- This topic has 1 reply, 2 voices, and was last updated 8 years ago by .
Viewing 2 posts - 1 through 2 (of 2 total)
Viewing 2 posts - 1 through 2 (of 2 total)
- You must be logged in to reply to this topic.
OpenTuition recommends the new interactive BPP books for September & December 2024 exams.
Get your discount code >>
Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Re: Rosa Nelson (Dec 2008)
Hi Sir,
“She is considering a scheme to repay current borrowings of $800m and raise new capital through a bond issue of $2,400 millon. The current debt consists of several small loans raised in the Euro market with differing maturities and carrying an average rate of interest of 5.6%. The average tern to maturity of the existing debt is 4 years……
How come to calculate Kd, we cannot use interest (1- tax rate), which is 5.6 (1-tax rate), but we have to use kd = risk-free rate + credit risk spread instead? Why i cannot take the current borrowings as a form of borrowings from the bank?
Please advise.
Thanks!
Regards,
Joanna
It is because the new debt is a 10 year bond, which certainly cannot be compared with several small loans with different maturities and an average maturity of only 4 years.