Reposted from APM: This related to AFM Q2 SD 2017

When assessing the impact on the SOFP, the answer calculates the amount available for investment in PPE by taking the sale proceeds ($7,674) and deducting the increase required in current assets ($902) and the book value of the debt ($3,200) to get an amount available for PPE investment of $3,572.

However, the question tells us that the debt is currently trading at $96 per $100 so why would the company pay $3,200 when the market value of the debt is only $3,072? Were we supposed to make the assumption that it would have to pay par value in order to get the interest and that there weren’t any willing sellers at $96?

If the company was able to redeem the debt at a reduce rate you still take the book value down to nil and then do you take the profits on redemption below par to reserves?

Many thanks,

Sam