Problem 6: At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of P1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 and December 31. To help the sale of the bonds, share warrants are issued – one warrant for each P1,000 bond sold. The warrant entitles the holder to purchase five shares at P85 per share. The par value of the share is P50. It is reliably determined that the value of the warrants is P25 each at the time of the issuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similar bonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and the rest expired. The following present value factors are made available: PV of 1 at 12% for 5 periods .5674 PV of an ordinary annuity of 1 at 12% for 5 3.6048 periods PV of an ordinary annuity of 1 at 12% for 10 5.6502 periods PV of an ordinary annuity of 1 at 6% for 10 7.3601 periods PV of an ordinary annuity of 1 at 14% for 5 3.4331 periods PV of an ordinary annuity of 1 at 14% for 10 5.2161 periods PV of an ordinary annuity of 1 at 7% for 10 periods PV of 1 at 12% for 10 periods .3220 PV of 1 at 6% for 10o periods .5584 PV of 1 at 14% for 5 periods .5194 PV of 1 at 14% for 10 periods .2697 PV of 1 at 7% for 10 periods .5083 7.0236
Problem 6: At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of P1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 and December 31. To help the sale of the bonds, share warrants are issued – one warrant for each P1,000 bond sold. The warrant entitles the holder to purchase five shares at P85 per share. The par value of the share is P50. It is reliably determined that the value of the warrants is P25 each at the time of the issuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similar bonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and the rest expired. The following present value factors are made available: PV of 1 at 12% for 5 periods .5674 PV of an ordinary annuity of 1 at 12% for 5 3.6048 periods PV of an ordinary annuity of 1 at 12% for 10 5.6502 periods PV of an ordinary annuity of 1 at 6% for 10 7.3601 periods PV of an ordinary annuity of 1 at 14% for 5 3.4331 periods PV of an ordinary annuity of 1 at 14% for 10 5.2161 periods PV of an ordinary annuity of 1 at 7% for 10 periods PV of 1 at 12% for 10 periods .3220 PV of 1 at 6% for 10o periods .5584 PV of 1 at 14% for 5 periods .5194 PV of 1 at 14% for 10 periods .2697 PV of 1 at 7% for 10 periods .5083 7.0236
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 16P
Related questions
Question
PLEASE KINDLY ANSWER.
26. What is the issue price of the bonds without warrants?
27. What is the equity component upon initial recognition?
Transcribed Image Text:Problem 6:
At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of
P1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 and
December 31. To help the sale of the bonds, share warrants are issued – one warrant for each P1,000
bond sold. The warrant entitles the holder to purchase five shares at P85 per share. The par value of
the share is P50. It is reliably determined that the value of the warrants is P25 each at the time of the
issuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similar
bonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and the
rest expired. The following present value factors are made available:
PV of 1 at 12% for 5 periods .5674
PV of an ordinary annuity of 1 at 12% for 5 3.6048
periods
PV of an ordinary annuity of 1 at 12% for 10 5.6502
periods
PV of an ordinary annuity of 1 at 6% for 10 7.3601
periods
PV of an ordinary annuity of 1 at 14% for 5 3.4331
periods
PV of an ordinary annuity of 1 at 14% for 10 5.2161
periods
PV of an ordinary annuity of 1 at 7% for 10 7.0236
periods
PV of 1 at 12% for 10 periods .3220
PV of 1 at 6% for 10 periods .5584
PV of 1 at 14% for 5 periods .5194
PV of 1 at 14% for 1o periods .2697
PV of 1 at 7% for 10 periods .5083
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 1 images
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College