Debussy Ltd issues 3,000 convertible bonds at the start of 2020. The bonds have a four-year term and are issued at par with a face value of $1,000 per bond, giving total proceeds of $3,000,000. Interest is payable annually in arrears at a nominal annual interest rate of 7%. Each bond is convertible at any time up to maturity into 300 ordinary shares. When the bonds are issued, the prevailing market interest rate for similar debt without conversion options is 10%. Round your answer to the nearest dollar. Required: Determine the amount for the liability and equity components of the convertible notes. Show your workings. The present value factors relevant for the calculation are as followed: 4-year discount factor: Simple Cumulative 7% 0.763 3.387 10% 0.683 3.170
Debussy Ltd issues 3,000 convertible bonds at the start of 2020. The bonds have a four-year term and are issued at par with a face value of $1,000 per bond, giving total proceeds of $3,000,000. Interest is payable annually in arrears at a nominal annual interest rate of 7%. Each bond is convertible at any time up to maturity into 300 ordinary shares.
When the bonds are issued, the prevailing market interest rate for similar debt without conversion options is 10%.
Round your answer to the nearest dollar.
Required:
Determine the amount for the liability and equity components of the convertible notes. Show your workings.
The present value factors relevant for the calculation are as followed:
|
4-year discount factor: |
Simple |
Cumulative |
|
7% |
0.763 |
3.387 |
|
10% |
0.683 |
3.170 |
ANSWER HERE:
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