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Issue costs for the subsidised loan and convertible loan notes would be paid out of available cash reserves if that so then why are they grossing up the issue cost?
Issue costs
Debt: ($30,600,000/0.96) = $31,875,000
Debt issue costs: $31,875,000 X 0.04 = $1,275,000Sir i think this should be,
(30600000*4%)=122400 as this was financed from reserves however if sufficient fund wasn’t available then i believe the examiner approach is correct the above one?You are correct and the examiners answer is wrong – the issue costs should be 1224 and not 1275. You would still have got the 1 mark for this if you had shown the issue costs as being 1224.
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