Question

# Bonds with Detachable Warrants Langdon & Co. issues bonds with a face value of \$50,000 for...

Bonds with Detachable Warrants Langdon & Co. issues bonds with a face value of \$50,000 for \$51,000. Each \$1,000 bond carries 10 warrants, and each warrant allows the holder to acquire one share of \$1 par common stock for \$40 per share. Immediately after the issuance, the bonds are quoted at 99 ex rights and the warrants are quoted at \$5 each. Calculate the value to be assigned to the bonds and to the warrants. Round your answers to two decimal places.

 Value assigned to bonds \$ Value assigned to warrants \$

 Market Value of bonds Without Warrant = (\$1000 x 99%) x \$50,000/\$1000 \$49,500.00 Market Value of bonds With Warrant (\$5 x \$50000/\$1000 x 10) \$2,500.00 Issuance Price \$51,000.00 Value assigned to bonds = (MV of Bonds without warrant /MV of Bonds Without Warrant + MV of Bonds With warrant) x Issue price Value assigned to bonds = (\$49,500/(\$49500 + 2500)) x \$51000 \$48,548.08 Value assigned to Warrant = (MV of Bonds warrant /MV of Bonds Without Warrant + MV of Bonds With warrant) x Issue price Value assigned to Warrant = (\$2500/(\$49500 + 2500)) x \$51000 \$2,451.92

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