Forum Replies Created
- Posts
About the calculation you have provided on the share price (it is actually similar to what the book provides). I found some issues there and you did not (as I see). Well if it is absolutely logical to you then I can not do anything. As I said before that Net Net it is still:
$10 000 000 debt for 1 000 000 shares, means that the price is 10 mln/1 mln = $10, but not $1. And Net Net after 2 years will be 6mln (10-4) divided by 1mln shares which is $6 per share, but not $1 per share.
Perhaps I am so stupid that I do not see any errors in my calculation. I will check it twice with my mentor later.
About the percentage question, I am not happy. I remember to do the same calculation and it is clear how to calculate interest payment (no big deal). I will respond later in a couple of days I full if you allow me to do so. No time now. (Sorry for my English).
The point is that according to my initial calculation, IN FACT at the beginning, the price is 10$ but 1$ per share. I will repost the calculation bellow. How about you my friend provide your calculation?
Because if you exchange $10 000 000 debt for 1 000 000 shares, it means that the price is 10 mln/1 mln = $10, but not $1.
Another thing. The solution says that:
… If the warrants attached to the mezzanine debt are exercised, AV will be able to purchase 1 million new shares in AIR for $1 each. This is a cheap price considering that the book value per share at the date of bu~out is $3.50 ($35m/10 million shares). …
How does that work? Because if you exchange $10 000 000 debt for 1 000 000 shares, it means that the price is 10 mln/1 mln = $10, but not $1.
Moreover, the terms say that te exachge can be done only after 2 years. After 2 years some part of debt is already repaid by $4 mln ($2 mln per year) and the actual price should be 6mln (10-4) divided by 1mln shares which is $6 per share, but not $1 per share.Hello. Sorry for my English. It is said that the loan would be for a five year period with principal repayable in equal annual installments. In the solution, such a payment is 2 000 000 pa (10 000 000 / 5). Why should it not be 3 197 778? From 10 000 000 / 3.1272, where 3.1272 is anuity for 18% for 5y.
I understand that we can make and state our assumption that the 0.5% fee relates to IR Swap though
I think I understand IR and Currency swaps. There can be different kinds of them. Conceptions are quite simple. No big deal. My problem is that ACCA constructs the questions in an unethical way. It is normal that they try to confuse us using some tricks, but when a sentence has a double meaning – it is unfair. As I wrote before: it is unclear to which swap the 0·5% fee relates
Thank you for the response. How about they use “the” in “the swap” in?:
“Buryecs Co’s bank would charge an annual fee of 0·5% in € for arranging the swap.”
It looks like that fee of 0·5% relates to the swap of providing currency rate exchange now and in three years time (let’s call it swap 1), but in fact it relates to interest rate swap (swap 2).
Hello! Sorry for my English. Why would ACCA make such a confusing text? It is unknown where the first swap’s terms end and where the second’s start. It turned out there are two swaps: a swap that exchange EUR to USD at the beginning and at the end of the three-year period in the dollar amount of 5,000 USD (more like a Forward contract to me) and the swap involving interest rates on loans on different currencies. They use “the swap …” wording with “the” when talking about the 0.5% fee which makes it look like some kind of a combined swap, but in fact, these are two separated swaps and the calculations are also separated . I spent 30 minutes trying to solve this riddle and I failed. It looks very unethical
Buryecs Co’s finance director (FD) has contacted its bankers with a view to arranging a currency swap, since he believes that this will be the best way to manage financial risks associated with the franchise. The swap would be for the initial fee paid for the franchise, with a swap of principal immediately and in three years’ time, both these swaps being at today’s spot rate. Buryecs Co’s bank would charge an annual fee of 0·5% in € for arranging the swap.