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Hi sir need a little clarification on this please
part (a) Discussion Part
why is extending ov’erdraft facility for period 1 approriate but not for period 2
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answer says extra fiancin of $0.5 mil is needed for Period 1 and
$9.5 mil needed for Period 2 … i dont understand what this means..dont kno where the figures are coming fromThe company has an overdraft limit of $2M (from the first line of the question).
At the end of period 1, the worst that can happen is that the overdraft is $2.5M and therefore they need to increase their limit by the extra $0.5M
Similarly, at the end of period 2, the worst that can happen is that the overdraft is $11.5M, so since their current limit is $2M they need to increase the limit by the extra $9.5M.
oh stupid mi..i miss that…
thank u so much sir
ur help is so much appriciate
thank u 🙂i kno this may sound stupid to ask so 4give mi, but i dont quite seem to grab what is meant by Longterm debt being NON-TAX DEDUCTIBLE?
i kno they are expensive because of the longer risk related to it… does it mean that we dont pay tax on it? if yes why is short-term debt Tax-deductible??
I am not sure about the context in which you are asking this.
There is no mention in the question ZSE about long-term debt being non tax deductible.
By long-term debt we are normally referring to long term borrowing, and the interest payable is normally tax allowable (we certainly do not pay tax on the interest we pay). The interest on short-term borrowing is also normally tax allowable.
sorry i was asking in general as a whole i was not refering to zse
so, let mi get this right: we will pay tax to the government on each long term debt evry year ?? :/
example:
we have a $250,000 long term loan who has interest payable of 2%(5000)p.a Tax is payable on the 5000?do we usually use the general tax % in the question or there is a specific tax rate associated with the long term debt?
No !
Interest paid by us on borrowings is allowable for tax. The interest reduces the taxable profit, and so we save tax (not pay extra tax).
The tax effect is at whatever the tax rate given in the question is – there is no special rate.(Long term debt refers to borrowings that we have made, so we are paying interest)
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