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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.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).
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