Question 20)

PART A

Which of the following statements regarding an interest-only loan is correct?

A. Throughout the term of the loan, the entire loan is classified as a non-current liability.

B. All interest-only loans are unsecured.

C. Throughout the term of the loan, none of the payments include a principal component.

D. None of these statements are correct.

E. Throughout the term of the loan, interest paid must be classified as an operating activity.

PART B

Which of the following statements regarding the Total equity of a listed public company is correct?

A. Total equity represents the amount invested by the current shareholders.

B. None of these statements are correct.

C. Total equity should approximate the market value of the company.

D. Total equity represents the amount invested by the original shareholders.

E. Total equity represents the amount of cash that would be available to shareholders after liquidating all the assets and settling all the liabilities.

PART C

In which order do the following rank in terms of distributions of the proceeds from the net assets of a company upon liquidation?

A. There is no order, all creditors and shareholders are paid according to their proportion of debt or capital in the company.

B. Preference shareholders, Creditors, then Ordinary shareholders.

C. Creditors, Ordinary shareholders, then Preference shareholders.

D. Creditors, Preference shareholders, then Ordinary shareholders.

E. Ordinary shareholders, Preference shareholders, then Creditors.

Part D

Mesitimi Limited has finalised the planning of a project that requires an investment of $101 million. In considering its financing options, Mesitimi Limited can access debt finance at an incremental borrowing rate of 6% per annum. Economic modelling indicates that shareholders expect a minimum return of 12%. The corporate tax rate is 30%.

Calculate, to two decimal places, the weighted average cost of capital (WACC) if Mesitimi Limited decides to finance 42% of this project using equity finance.

Part E

Daneistis Limited provides the following loan schedule in relation to its borrowings:

Date	Payment ($)	Interest ($)	Principal ($)	Balance ($)
30 June 2020				749,950
30 June 2021	113,700	33,748	79,952	669,998
30 June 2022	113,700	30,150	83,550	586,448
30 June 2023	113,700	26,390	87,310	499,138
30 June 2024	113,700	22,461	91,239	407,899
30 June 2025	113,700	18,355	95,345	312,554
30 June 2026	113,700	14,065	99,635	212,919
30 June 2027	113,700	9,581	104,119	108,801
30 June 2028	113,700	4,899	108,801	0

Calculate, to one decimal point, the interest rate % Daneistis Limited is being charged by the lender.

Thank you (please answer all parts)