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I have a small problem in market value of debt ..the par value is 1000 Euro and 18 million in sofp
Market currently priced is 1230 euro
So I did 18 ,million/ 1000 = 18000 bonds * 1230= 22140000
And plus medium loan 30 million I get 52140000Is my way of doing is correct ??
In the kit they are doing
18* 1.23+30….why they wrote 1230 euro in 1.23. 1230 euro is the price per bond isn’t it ??? It’s the whole price ..like as we say 1230 dollars and not cents ???
I don’t know y m confused…m I doing wrong way?
I want to be sure on my approach ..
Also for tax shiel in same qs intergrand
The tax shield is ..30 * O.25 …( My confusion is we get tax shield on interest of debt then y they are putting 30 million ..it’s the total debt value ???
And the other one for bonds
I do tax shield 8% of 18 m bonds multiplied with tax rate is giving tax saved 14.4 ..I don’t understand kit is doing 4% 7 year cumulative discount ??? What is the 7 year and where I can find
It says the cash flows are in infinity by 2% growth ???
Are they doing the growth model for tax also ??? Can u please help me
First question:
They wrote 1.23 simply because doing what you did and dividing by 1,000 and then multiplying by 1,230 is the same as multiplying by 1.23.
However what you have done is fine – it doesn’t matter how you get to the correct answer 🙂
Second question:
The bond is redeemable is 20X9 and the financial statements are as at 20X2. So they are redeemable in 7 years time
Note 11 in the question says that flows inflate at 2% a year after 20X6. If the profits grow then automatically the tax must grow as well at the same rate (nothing to do with the tax shield).
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