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Dear Mike,
I still have difficulties to understand the logic how the note 3 has been answered.
I watched the video, but unfortunately the solution is still no clear to me.Probably I get confused when the question saying the “the 5% convertible loan note was issued for procceds of $20M.
When first answering the question I use $20M as nominal value of the loan which sounds not being correct.
Could you please help?
Thanks
Gabriella
No, you are correct – the loan note does have a nominal value of $20,000
But it’s a convertible loan note so there is an element of debt (most of the $20,000) but there’s also an element of equity
What you need to do is find the present value of the minimum cash payments associated with servicing the loan, deduct that present value from the $20,000 and the missing figure is the equity element
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