Part (a, iii) asked candidates to advise whether the unsecured bond holders would be willing to become shareholders of the newly listed company. The calculations to support the advice, involved calculating the current market value of the bonds (not the book value of $40m).

If the 10% of the total value of equity is greater than the current market value of the bonds, then the bond holders may consider agreeing to the equity for debt swap. This part was not done well. Few candidates could calculate the current value of the bonds, most incorrectly discounting by the coupon rate to get back to the $40m.

The subsequent advice given was poor, with little insight given as to why might the bondholders accept or not accept the offer, except to say in very general terms that if the equity value was greater than the current bond value they would probably accept the offer. Many answers displayed a lack of sound understanding of the subject.

Part (a, iv) asked candidates to discuss their results, including any assumptions made in obtaining the results, additional reasons for listing and why new shares maybe issued at a discount. Stronger answers did this part well and especially the reasons for listing and issuing new shares at a discount were covered well.

The answers explaining the assumptions were somewhat weaker, giving general but not scenario-specific assumptions. Few answers gave the range of possible share prices (with and without the project, with and without the discount), and therefore the discussion here was limited.

A sizeable number of candidates ignored or answered this part very superficially and therefore did not gain the majority of the 12 marks.. Candidates must ensure that all parts of all questions are answered in reasonable depth and commensurate to the marks allocated for that part.