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1)-Proteus agrees to cancel its current loan to Tco , it confuses me , i was thinking the loan is paid by parent(proteus) and i didnt consider as loan when i was doing question , i thought it is just market value 0f 81m , do they mean M.V of debt ?
2)-The initial loan is 81M (market value) – 12M (from managers) – 4M (from venture capital) = 65M
The managers are buying this company thats why the investment of 12 m is deducted from the loan , am i right ??3)-The interest is at 9%. So the first years interest is 9% x 65M = 5.85M
They pay back 3M a year, so the amount owing at the start of the second year is 65 – 3 = 62M.
while arriving at the calculation of debt/equity they are taking 62 rather than 65 , why not they are taking 65 (i.e start of loan)
i feel so nervous while doing question of reconstruction and business evaluation , it just me or happens to others also , all of answers got wrong and i directly jump to an answer to try to undertsand the solution.
1. The question says that the managers are investing 12M and 4M is coming from venture capitalists. The total value is 81M and the question says that the balance (which is 65M) comes as a loan from Palaemon bank. This has nothing to do with the loan from Proteus to Tyche – the question says that this loan is cancelled.
2. Yes – that is the first years interest (which is the figure the examiner arrived at in his answer).
3. The amount owing at the end of the first year (start of the second year) is 62M. Ratios are always calculated using end of year figures.
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