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Hello Deep,
With regards to Lorenz Co, I don’t think you have fully understood the question. Lorenz has changed its accounting policy for goodwill from annual amortization to IFRS 3 requirements of annual impairment testing. Hence a change in accounting policy requires IAS 8 disclosures. Lorenz has not disclosed this change. The question requirement is implications to audit reporting.
Struggling to get my results. No email, no sms, no access to myACCA no nothing!
The cost of Debt can be calculated using the IRR interpolation. Assuming Mohammed is rite on the assumption that the debentures were issued in 1994. I disagree coz that last five years refers to the dividend payout over the last five years. They could have been issued anytime.
Finding the PV of the CFs, first using discount rate of 12%. The CFs being Market Value 90, Interest 5.85 (9-(1-0.35) and the Redemption value of 100, gave a NPV of (20.54). And using a discount rate of 6% on the same CFs I got a NPV of 5.35.
Substituting these in the IRR formula: 6%+ ((5.35/(5.35+(20.54))*(12%-6%) = 7.2%.
Now you can apply the respective weights of equity and debt capital to the calculated costs to get the WACC.