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Dear John,
The new company got two loans 8% bond and 6% convertables. It seems that in the answer authors treat 6% convertables as constant non-current loan of 20m without any interest paid? It may not change gearing substantially, but still interest should be paid annually?Thanks,
VeronikaThe answer does have interest paid on the convertibles.
The interest is 6% x $20M = $1,200,000 per year and this has been added to the interest on the 8% bond when arriving at the finance costs in the estimated profit statements.
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