On January 1, 2016, CRAZIER Corp. issued a 10% convertible bonds with a face value of P4M maturing on December 31, 2025. Each P1,000 bond is convertible into ordinary shares of CRAZIER at a conversion price of P25 per share. Interest is payable half-yearly in cash. At the date of issue, CRAZIER could have issued nonconvertible debt with a ten-year term bearing a coupon interest rate of 11%.   On January 1, 2021, the convertible bond has a fair value of P4.4M. CRAZIER makes a tender offer to the holders to repurchase the bonds for P4.4M. The holders of the P2M bonds accepted the offer. At the date of repurchase, CRAZIER could have issued non-convertible debt with a 5-year term bearing a coupon rate of 8%.   The purchase of the bonds on January 1, 2021 decreased equity by   a. P0 b. P76,630 c. P37,710 d. P439,530

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 17P
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On January 1, 2016, CRAZIER Corp. issued a 10% convertible bonds with a face value of P4M maturing on December 31, 2025. Each P1,000 bond is convertible into ordinary shares of CRAZIER at a conversion price of P25 per share. Interest is payable half-yearly in cash. At the date of issue, CRAZIER could have issued nonconvertible debt with a ten-year term bearing a coupon interest rate of 11%.
 
On January 1, 2021, the convertible bond has a fair value of P4.4M. CRAZIER makes a tender offer to the holders to repurchase the bonds for P4.4M. The holders of the P2M bonds accepted the offer. At the date of repurchase, CRAZIER could have issued non-convertible debt with a 5-year term bearing a coupon rate of 8%.
 
The purchase of the bonds on January 1, 2021 decreased equity by
 
a. P0
b. P76,630
c. P37,710
d. P439,530
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