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Loan note

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Loan note

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  • December 8, 2022 at 9:36 am #673592
    minhnguyen@abc
    Member
    • Topics: 12
    • Replies: 16
    • ☆

    I will be really greaful if you can explain this confusing question for me: (find the FINANCE COST)

    Given 8% convertible loan note : 30 million , Loan interest paid : 2,4 million

    The 8% $30 million convertible loan note was issued on 1 April 20X5 at par. Interest is payable annually in arrears on 31 March each year. The loan note is redeemable at par on 31 March 20X8 or convertible into equity shares at the option of the loan note holders on the basis of 30 equity shares for each $100 of loan note. Highwood’s finance director has calculated that to issue an equivalent loan note without the conversion rights it would have to pay an interest rate of 10% per annum to attract investors.
    The present value of $1 receivable at the end of each year, based on discount rates of 8% and 10% are:
    8% 10%
    End of year 1 0.93 0.91
    2 0.86 0.83
    3 0.79 0.75

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