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Hi Sir,
Link Co has been prevented by the competition authorities from buying a competitor, Twist
Co, on the basis that this prevents a monopoly arising. Link Co has therefore decided to
expand existing business operations instead and as a result the finance director has
prepared the following evaluation of a proposed investment project for the company.
$000
Present value of sales revenue 6,657
Present value of variable costs (2,777)
Present value of contribution 3,880
Present value of fixed costs (1,569)
Present value of operating cash flow 2,311
initial capital investment (1,800)
Net present value 511
The project life is expected to be four years and the finance director has used a discount
rate of 10% in the evaluation. The investment project has no scrap value.
The finance director is considering financing the investment project by a new issue of debt.Which of the following statements relating to debt finance is correct?
A Link Co can issue long-term debt in the euro currency markets
B The interest rate which Link Co pays on its new issue of debt will depend on its
weighted average cost of capital
C A new issue of loan notes by Link Co will take place in the primary market
D Link Co will not be able to issue new debt without offering non-current assets
as securitywhy it cant be 1st one ?
The eurocurrency market is for borrowing money in a currency that is not the currency used in the country where the company is based.
so there is no where mentioned that it is a euro currency market instead as per question dollar rates are used
There is no mention of the competitor being in a foreign country (which wouldn’t have to be a Euro country to use the eurocurrency market), then you cannot simply assume that it is. Also, the competition authorities would only be worried about there being a monopoly if the competitor was in the same country.
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