Bento Co (Jun 15) – Debt calculation

Hello John,

I want to seek your support to understand a specific case here (Question: Bento Co (Jun 15))

I was trying to understand part (b) question and answer. Out of 2 loans only first loan and interest were considered to work out the total debt.

1. $30m loan at 8% and interest payable annually based on the loan outstanding balance at the start of each year and repaid on fixed equal annual payments.

2. $20m loan at 6% convertible bond on which interest is payable annually. Conversion may be undertaken on the basis of 50 Equity shares for every $100 from the beginning of year five onward.

Should I understand that loan 2 ($20m) will be converted into equity after year 4 and hence should not be considered for debit calculation?

You have already addressed this in the past, please help me to get the link for further reading.

Thank you!
Madhu