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Dear John,
1) debt conversion at par in the question, but in the answer it is at 10%.
2) actual question: why we don’t discount at 10% share price payable in 3 years time?Thanks in advance.
In future you must ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other 🙂
1. The debt is convertible and therefore the lenders have the choice of either taking cash of $100, or taking 20 shares. Given that the estimated value of 20 shares in 3 years time is $110, they will be expecting to take the shares and therefore receive $110 in 3 years time.
2. The $110 is receivable in 3 years time and has therefore been discounted for 3 years at 10% in arriving at the market value of debt.
It seems that maybe you are using the notes without watching the free lectures (because I work through this example and explain in the lecture).
It is pointless to use the notes without watching the lectures because they are only lecture notes – it is in the lectures that I explain and expand on the notes. If you are not watching the lectures for any reason then you need to buy a Study Text from one of the ACCA approved publishers and study from there.
Thanks John,
Got it now!
I have watched all your lectures. Currently I am on my way to solve all examples from the notes by myself without re-viewing all the lectures. This should help me to check what I remember (and actually understand!) and what I don’t. This one was a miss!Thank you very much for your help!
Veronika
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