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QUESTION 2 25 MARKS After long negotiations, Marks & Spencer (M&S) merger with David Jones occurred in 2020.The combination of these two companies provides significant advantages that will benefit them and their customers. The group will have increased scale that will drive significant efficiencies and economies through enhanced global sourcing and the ability to leverage shared seasonality and trends, improving value for the customer and overall pr ofitability. Each business will be well equipped to compete with global retailers in their respective markets. To finance this deal, M&S issued a 7%, 10-year bond with a face value of R50 000 000 on the 1 January 2019. The market interest rate at the time of issuance was 9%. The coupon payment would be made twice a year which will be on the 31st July and 31 January. This is the only long-term liability that M&S has in the balance sheet. Below is the extract of M&S group balance sheet for 2020 and 2021. REQUIRED (a) At what price was this bond issued? Marks 5 (b) Amortize this bond and show the outstanding liability at the end of the first five years (round up to the nearest million) 5 (c) Clearly indicate by use of figures (where possible) the effect of issuing this bond on the following in 2019 and 2020: i) Interest recorded in the income statement ii) CFO iii) CFF iv) Outstanding liabilities in the balance sheet 2 2 2 2 (d) What is the impact of issuing this bond on the trend of net income of M&S 2 (e) Calculate leverage ratios of M&S and comment on its solvency status in 2020 and 2021 5 TOTAL 25

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