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When The Question Says : A Company Has In Issue 10% Loan Notes With Current MV Of Rs. 98. So The Rs. 98 Is A Cash Inflow Or Cash Outflow?
It is neither! It is the market value of the loan notes in issue.
I assume you are asking from the point of view of calculating the cost of debt, in which case treat the market value as though an outflow and the interest payments as inflows (I explain in my lectures on this why this is the normal approach, but I also explain why it makes no difference anyway!).
I suggest that you watch my free lectures – they are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Thanks Sir. I Do Watch Your Lectures. But This Is Something Which I Haven’t Still Figured Out. A Further Help Will Be Appreciated.
But I do explain everything in the lectures, so you will have to say what further help you need.
If you are thinking that the market value should be an inflow and the interest payments should be outflows, then by all means show it this way. The IRR will still be the same, because the NPV will still be zero at the IRR whichever way round you set up the flows. Try it and see 🙂
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