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Sir,
I am puzzled by the calculation of value foregone by the VCO, regarding the loan. Why is interest if the loan not included in the value?
I am not clear what you are asking. The answer has used the profit before interest.
(In future please do say which exam the question is from – I can’t remember the name of every question in every exam 🙂 )
Sorry sir, i was in a rush while typing the question and forgot to add in the details. Mar/June 2017 Question 1.
In the calculation of the value foregone by the VCOs, why is the value of their unsecured bonds 4,800m (which is the book value in the financial statements)? I am puzzled as to why the book value is used to calculate the value of the unsecured bonds without considering the interest payments that the VCOs would lose from cancelling the bondsJust suppose you have $100 in the bank (earning interest) and the bank collapses and you lose your money. How much would you say you had lost? Surely you have lost $100.
If you have $100 in your pocket, you don’t claim that it is actually more than $100 because ti could earn interest in the future. It is the same thinking 🙂
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