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Hi sorry two questions!
I did a mock on bpp working out the values of dentures 10% at 6 years with a 5 % premium I did all the workings ok but in the question it mentioned there was a tax charge of 20% so I did the value at 8% however the answer didnt incorporate tax is there a rule as to when to use the tax on interest?Next I’m just looking at question 211 in bpp revision text it mentioned rights issue but doesnt say what amount in this case would it always be assumed the regular 1 for 4?
Many thanks
Stacey
With regard to the debentures, it is investors who determine the market value and they are not affected by tax. Tax is only relevant when calculating the cost of debt to the company.
This is commonly asked in the exam, which is why I do stress it in my free lectures on the valuation of securities.I do not know what makes you say that rights issues are ‘the regular 1 for 4’. That is certainly not the case – rights issues are not always 1 for 4, they can be anything!!!
The question tells you at what price the rights are issued, and it also tells you how much is being raised in total. So you can calculate from that how many new shares are issued.I do suggest that you watch my free lectures – they are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Thank you. I do remember seeing that in your lecture now it’s just when i was doing the question earlier it totally slipped my mind.
Thank you for replying to me and thank you so much for your lectures they have been exceptionally helpful!
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