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Greetings
I have seen different methods of calculating the market value of loan notes:First method: Market value of loan notes = 200m x 103·5/100 = $207 million
(TINEP CO DEC 2014)Second method: The market value of the loan notes will be (70 x 5·747) + (1,000 x 0·540) = 402·29 + 540·00 = $942·29 per loan note.
This is also referred to as the floor value of the loan notes
(DARGLA CO JUNE 2016)The difference i see in both methods is that the first one is total market value of loan notes while the second one is the MV per loan note.
Is my observation the only (correct) difference?Thank you in advance
There are not two methods!!
In Tinep the MV of a loan note is given in the question and we simply need to total MV of the debt for the calculation of the WACC.
In Dargla we are required to calculate the MV and that is always the PV of the future receipts (interest and redemption) discounted at the investors required rate of return. The reference to the floor value is purely because they are convertibles – the term does not apply to ‘normal’ debt.
I do suggest that you watch my free lectures on all of this. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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