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Tulip Co (Q.207 BPP book)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Tulip Co (Q.207 BPP book)

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
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  • May 8, 2021 at 11:07 pm #620095
    thuongha
    Member
    • Topics: 22
    • Replies: 15
    • ☆

    Hi Sir,

    The text says that the 3% loan notes of nominal value $100 per note will be redeemable after 5 years at nominal value or convertible at that time into ordinary shares with a value expected to be $115 per loan note.

    Q.207 requires calculating IRR, so I calculated the NPV of this with -$100 in time 0, 3%*$100 interest received from time 1 to 4, and the expected value $115 in time 5. This got me the cost of debt of 5.2%.

    But the answer in BPP book shows that 3% interest is received in time 1-5, why is this please?

    Thank you so much.

    May 9, 2021 at 9:28 am #620122
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51576
    • ☆☆☆☆☆

    Interest is paid at the end of each of the years that the loan notes exist.

    The loan notes are not redeemed or converted until the end of 5 years and so there sill be interest for each of the five years and in addition the redemption or conversion at the end of 5 years.

    Do watch my free lectures on 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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