Company P is a pharmaceutical company listed on an alternative investment market.

CIMA F3 Question Answer

The company is developing a new drug which it hopes to market in approximately six years' time.

Company P is owned and managed by a group of doctors who wish to retain control of the company. The company operates from leased laboratories with minimal fixed assets.

Its value comes from the quality of its research staff and their research.

The company currently has one approved drug which generates sufficient cashflow to cover day to day operations but not sufficient for major new research and development.

Company P wish to raise debt finance to develop the new drug.

Recommend which of the following types of debt finance would be most appropriate for Company P to help finance the development of this new drug.

6% Eurobond repayable at par in 5 years' time.

5% Bond repayable at par in 7 years' time.

3% Commercial Paper.

4% Convertible bond with a conversion ratio of 350 ordinary shares per bond.