In March 2016, NuVasive, a medical device company, raised $634 million of 2.25% convertible senior notes due 2021. The company’s stock price was $45.15 at the time. The conversion rate is 16.7158 shares per $1000 bond. Calculate the conversion price in dollars and the premium as a percentage. Then discuss reasons that explain the size of the premium. Also explain why NuVasive decided to issue convertible bonds instead of regular bonds.

In March 2016, NuVasive, a medical device company, raised $634 million of 2.25% convertible senior notes due 2021. The company’s stock price was $45.15 at the time. The conversion rate is 16.7158 shares per $1000 bond. Calculate the conversion price in dollars and the premium as a percentage. Then discuss reasons that explain the size of the premium. Also explain why NuVasive decided to issue convertible bonds instead of regular bonds.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EB: Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual...

See similar textbooks

Similar questions

Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual coupon (payable June 30 and December 31) on January 1, 2018, when the market rate of interest was 10%. Were the bonds issued at a discount or premium? Assuming the bonds sold at 92.288, what was the sales price of the bonds?
On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?
On August 31, 2015, Chickasaw Industries issued $25 million of its 30-year, 6% convertible bonds dated August31, priced to yield 5%. The bonds are convertible at the option of the investors into 1,500,000 shares of Chickasaw’s common stock. Chickasaw records interest expense at the effective rate. On August 31, 2018, investors inChickasaw’s convertible bonds tendered 20% of the bonds for conversion into common stock that had a marketvalue of $20 per share on the date of the conversion. On January 1, 2017, Chickasaw Industries issued $40 millionof its 20-year, 7% bonds dated January 1 at a price to yield 8%. On December 31, 2018, the bonds were extinguished early through acquisition in the open market by Chickasaw for $40.5 million.Required:1. Using the book value method, would recording the conversion of the 6% convertible bonds into commonstock affect earnings? If so, by how much? Would earnings be affected if the market value method is used? Ifso, by how much?2. Were the 7% bonds…
Uber Technologies Inc. issued $2 billion of bonds in October 2018. The total bond issuance included $500 million of five-year bonds with a 7.5% coupon and $1.5 billion of eight-year bonds with an 8% coupon. How would Uber’s financial statements be impacted by its $2 billion bond issuance? Would you have bought the bonds if you could? Why or why not?
During 2016, Oddie Corp. had net income of $300,000. Included in net income was after-tax interest expense of $20,000 on convertible bonds. The $200,000 face value of convertible bonds can be converted into common stock at the rate of 200 shares per $1,000 bond. Prior to the conversion, there were 400,000 shares of common stock outstanding. What is the amount of fully diluted earnings per share? $0.750 $0.636 $0.727 not determinable because the bonds are not dilutive
On April 1, 2020, CASHEW Company sold 12,000 of its ₱1,000 11%, 5-year face value bonds at 96. The bonds are dated April 1, 2020 and interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 31, 2021, CASHEW took advantage of favorable prices of its shares to extinguish all of the bonds by issuing 800,000 shares of its ₱P10 par value ordinary shares. At this time, accrued interest was paid in cash. The company’s shares was selling for ₱30 per share on March 1, 2021. How much is the increase in share premium due to the conversion of CASHEW’s bonds?
On April 1, 2020, CASHEW Company sold 12,000 of its ₱1,000 11%, 5-year face value bonds at 96. The bonds are dated April 1, 2020 and interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 31, 2021, CASHEW took advantage of favorable prices of its shares to extinguish all of the bonds by issuing 800,000 shares of its ₱P10 par value ordinary shares. At this time, accrued interest was paid in cash. The company’s shares was selling for ₱30 per share on March 1, 2021. How much is the increase in share premium due to the conversion of CASHEW’s bonds? ₱ 3,616,000 ₱ 0 ₱ 4,000,000 ₱ 3,520,000
On April 1, 2020, CASHEW Company sold 12,000 of its ₱1,000 11%, 5-year face value bonds at 96. The bonds are dated April 1, 2020 and interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 31, 2021, CASHEW took advantage of favorable prices of its shares to extinguish all of the bonds by issuing 800,000 shares of its ₱P10 par value ordinary shares. At this time, accrued interest was paid in cash. The company’s shares was selling for ₱30 per share on March 1, 2021. How much is the increase in share premium due to the conversion of CASHEW’s bonds? * a. ₱ 3,616,000 b. ₱0c. ₱ 4,000,000 d. ₱ 3,520,000
AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2016. The bonds sold for $150 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, AI elected the option to report these bonds at their fair value. On June 30, 2016, the fair value of the bonds was $145 million as determined by their market value on the NASDAQ. Will AI report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rate increase or decrease? Will the gain or loss be reported in net income or as OCI?
On January 1, 2015, Glover Corporation issued $2,400,000 of 5-year, 8% bonds at 95. The bonds pay interest annually on January 1. By January 1, 2017, the market rate of interest for bonds of risk similar to those of Glover Corporation had risen. As a result, the market value of these bonds was $2,000,000 on January 1, 2017—below their carrying value. Joanna Glover, president of the company, suggests repurchasing all of these bonds in the open market at the $2,000,000 price. To do so, the company will have to issue $2,000,000 (face value) of new 10-year, 11% bonds at par. The president asks you, as controller, “What is the feasibility of my proposed repurchase plan?” Instructions (a) What is the carrying value of the outstanding Glover Corporation 5-year bonds on January 1, 2017? (Assume straight-line amortization.) (b) Prepare the journal entry to redeem the 5-year bonds on January 1, 2017. Prepare the journal entry to issue the new 10-year bonds. (c) Prepare a short memo to the…