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Sources of Finance – Debt – ACCA Financial Management (FM)

VIVA

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  1. What happens if the company issues debts with warranties, with the option of buying, say 100 shares at 2$ in 2025, the current share price is 1$,
    the companies management sees in 2024 that the share price is about to go up to 6$, and they will go issue lots of bonus shares to reduce the price per share to nearer to 2$ to prevent the holders of the debts from ”enjoying” their well-deserved part of the increase in the share price.
    How do you protect the holders of the debt in this case?

  2. Hello Sir! I have doubt, Is the company allowed to buy back the Bonds from open market in case they are listed in the stock exchange at a price lower than the redemption price? thereby saving costs on debt.( Assuming they have sufficient cash reserve at this point in time ).

  3. Hi Sir!

    I would just like to clarify something. For convertibles, the lenders could choose either to get cash for payment or take up the shares right? While for warrants, whatever happens (taking up the warrant or not), they will still be repaid the amount or bonds owed to them upon maturity?

    Many thanks

  4. Hi Sir,

    Just to confirm my understanding, using an example “10% Debentures 2025 quoted at 96pc” , does this mean that at the redemption year of 2025, the debenture holder will be able to redeem the investment value which is 96% of the nominal value? I.e, if nominal value was $100, the debenture holder could redeem $96 , and not $100 right? (Unless it says redemption at par value)

    Thanks and Regards,
    Tim

    Thanks and Regards,

  5. Sir,
    I don’t understand why people would be willing to buy a bond payable at premium for lower interest rate considering the example the bank gave a higher interest rate of 7% wouldn’t the interest along with the principal be $170 and in case of 5% when payable @ 10% premium be $160 even if it’s 6% it would be equivalent to $160 but if i consider the cash flows and discount them that’s certainly a loss to investors
    Thanks in advance! Love the lectures

    • I am not quite sure that you are meaning. However, if the bonds are going to be repaid at a premium (which will not be the case if money is deposited at the bank) then this premium is a bit like receiving more interest and so they will accept a lower interest rate during the life of the bond.

  6. Sir,
    Although you emphasized that redemption rate cannot be tested (numerically)
    But how to calculate it? Is it the= current market value/(Total redemption $- market value)
    Here since, the market value is $80 and the total redemption is $110 would it be =(80/110-80)=37.5%
    Should the redemption yield be based on the Market value that when i bought or the market value at redemption rate.

    • I do not believe that I mention ‘redemption rate’ because there is no such term. It is the redemption yield (i.e. the return to investors) that you are asked to calculate and is meaningful. The return to investors is the IRR of the pretax flows to the investor as explained in the lectures.

  7. Hi john, do companies put a limit on buying traded debt? for e.g. a person wants to buy 1 unit of $100 which is risky as why would a company be prepared to pay 100 plus interest in 10 years time and if too many shareholders wants to give traded debt wont it would be dificult for a company to pay each one at a 10 years time. Do companies have a limit on these?

  9. Hello and thank you for everything, one small question please, which lecture chapters apply to part E of the syllabus”Business Finance” and which lecture chapters apply to part F of the syllabus “Business valuations”? I am a bit confused with how the lectures are distributed for F9.

    Thank you in advance!!

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