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While calculating the impact on EPS in question a, it adds the interest saved on 10% loan notes, but the answer doesn’t add the interest saved on other loan notes. As it says “The overall pre-tax cost of debt is currently 9% and can be assumed to fall to 8% when the 10% loan notes are redeemed”, it should save 1% interest on the remaining loan notes ($2700m), bank loans ($985m) and current liabilities ($2166m). Is this because I am overthinking?
Many thanks in advance!
The EPS is only affected if the coupon rate on existing debt were to change. If the cost of debt changes then the market value will change but the coupon rate is not affected.
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