Question

KIKO Bhd. issued RM50 million of 5% bonds which are redeemable at their par value of...

KIKO Bhd. issued RM50 million of 5% bonds which are redeemable at their par value of RM100 in 7 years’ time. Alternatively, each bond can be converted into 20 ordinary shares of the company within the next 5 years. The share price of KIKO is RM6 after 5 years. The company’s cost of debt is 3% per annum.

Analyse:

(i) The market value for each RM100 convertible bond if conversion is likely to take place.

(ii) The floor value for each RM100 convertible bond.

(iii) The number of additional shares will KIKO need to issue if the bondholders do convert the bonds.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

(i) Market value/Conversion value = equity value or stock value of the convertible

equity value or stock value of the convertible= stock price x conversion ratio = RM6 x 20 = RM120

(ii)Fair value of bond =

Year Cashflow PVF @ 3% PV
1-5 5 2.8286 (PVAF) 14.143
5 100 0.8626(PVF) 86.26

Total

 100.403

Fair Value of each convertible bond = 100.43

PVAF = {[1/(1+r)n] -1 } / r

PVAF = {[1/(1+0.03)5] -1 } / 0.03

PVAF = 2.8286

PVF = (1/(1+r))n

(iii) No of additional shares to be issued = conversion ratio * no of bonds to be converted

  No of additional shares to be issued = 20 * RM50 million

No of additional shares to be issued =RM100 million

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Sunland Corp. issued $18,000,000 par value 10% convertible bonds at 99. If the bonds had not...
Sunland Corp. issued $18,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. 2. Coronado Company issued $18,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $5. 3. Suppose Sepracor, Inc. called its convertible debt in 2020. Assume the following related to...
Q22:Suppose a firm issues a single bond with a face value of $100,000 which is Convertible...
Q22:Suppose a firm issues a single bond with a face value of $100,000 which is Convertible into 10,000 Ordinary Shares with a Par Value of $1. The credit entry to “Share Premium – Conversion Equity” on the date of issue was for $20,000.   Assume that the maturity date of the bonds has now arrived and the bonds will be converted into Ordinary Shares. The Entry to the “Share Premium – Conversion Equity” account on the date of conversion will be...
On January 1, 2018, Fowl Products issued $75 million of 7%, 10-year convertible bonds at a...
On January 1, 2018, Fowl Products issued $75 million of 7%, 10-year convertible bonds at a net price of $76.1 million. Fowl recently issued similar, but nonconvertible, bonds at 97 (that is, 97% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Fowl’s no par common stock. Fowl records interest by the straight-line method.    On June 1, 2020, Fowl notified bondholders of its intent to call...
On January 1, 2018, Madison Products issued $42.0 million of 6%, 10-year convertible bonds at a...
On January 1, 2018, Madison Products issued $42.0 million of 6%, 10-year convertible bonds at a net price of $43.00 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method. On June 1, 2020, Madison notified bondholders of its intent to call the...
On January 1, 2021, Madison Products issued $41.2 million of 8%, 10-year convertible bonds at a...
On January 1, 2021, Madison Products issued $41.2 million of 8%, 10-year convertible bonds at a net price of $42.12 million. Madison recently issued similar, but nonconvertible, bonds at 97 (that is, 97% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method. On June 1, 2023, Madison notified bondholders of its intent to call the...
On January 1, 2018, Fowl Products issued $77 million of 7%, 10-year convertible bonds at a...
On January 1, 2018, Fowl Products issued $77 million of 7%, 10-year convertible bonds at a net price of $78.3 million. Fowl recently issued similar, but nonconvertible, bonds at 97 (that is, 97% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 25 shares of Fowl’s no par common stock. Fowl records interest by the straight-line method.    On June 1, 2020, Fowl notified bondholders of its intent to call...
Two bonds are both redeemable at their par value of $100 in t years. Bond A...
Two bonds are both redeemable at their par value of $100 in t years. Bond A has 3.5% semiannual coupons and cost 88. Bond B has 4% semiannual coupons and cost $92. The bonds are purchased to produce the same yield rate. What is the yield rate per annum convertible semiannually?
On January 1, 2020, Sro Company issued ten convertible bonds with a par value of $8,000...
On January 1, 2020, Sro Company issued ten convertible bonds with a par value of $8,000 per bond in market for $82,000 in total. Each bond is convertible into 800 ordinary shares of $3 per ordinary share par value. The bonds have a four-year life and a stated interest rate of 8% payable annually. The market interest rate for similar non-convertible bonds on January 1, 2020, is 9%. c. Assume that the bond matured on December 31, 2023 and Sro...
On January 1, 2020, Sro Company issued ten convertible bonds with a par value of $8,000...
On January 1, 2020, Sro Company issued ten convertible bonds with a par value of $8,000 per bond in market for $82,000 in total. Each bond is convertible into 800 ordinary shares of $3 per ordinary share par value. The bonds have a four-year life and a stated interest rate of 8% payable annually. The market interest rate for similar non-convertible bonds on January 1, 2020, is 9%. Prepare the amortization schedule for the bonds, including the cash interest, interest...
BUZZ Corp. has a convertible bond issue outstanding. Each bond, with a face value of $1,000,...
BUZZ Corp. has a convertible bond issue outstanding. Each bond, with a face value of $1,000, can be converted into common shares at a rate of 73.2512 shares of stock per $1,000 face value bond (the conversion rate), or $13.651 per share. BUZZ’s common stock is trading (on the NYSE) at $14.90 per share and the bonds are trading at $972. Calculate the conversion value of each bond. Determine if it is currently profitable for bond holders to convert their...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT