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June 2009 Q3 b

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › June 2009 Q3 b

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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  • November 25, 2015 at 7:19 am #285079
    yushanshan
    Member
    • Topics: 84
    • Replies: 70
    • ☆☆

    A part of the answer of June 2009 Q3 b is”the main reason for the problem with the bank balance is the $2 million capital expenditure…through either a bank loan or a bond issue appears to be sensible. Assuming a bond interest rate of 10% per year , current long-term debt in the form of traded bonds is approximately ($200m@2)/0.1 =$4m, which is much less than the amount of non-current assets.”
    I just wonder what 200 and 2 represent in the question desperately.

    November 25, 2015 at 8:37 am #285114
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    In the cash flow forecasts in the question, there is a 6 month interest on bonds of 200.
    Therefore the yearly interest must be 2 x 200 = 400.

    We don’t know what the rate of interest is, but if it were (for example 10% a year) then to be paying 400 a year would mean that there were bonds of 4,000.

    (everything is in thousands obviously).

    November 25, 2015 at 3:44 pm #285217
    yushanshan
    Member
    • Topics: 84
    • Replies: 70
    • ☆☆

    Thanks 🙂 I am so careless:(

    November 25, 2015 at 4:57 pm #285253
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    You are welcome (and we are all careless at times 🙂 )

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