Question

Xenix Inc. issued $100 million of 10-year zero coupon convertible bonds. For every $1,000 of face value of the bond, the holder was entitled to 25 shares of the company's common stock. It was determined that a pure bond with maturity and risk profile similar to the convertible bond would have an effective interest of 8%. The proceeds from the issue were $97.4 million.

Required:
Determine (1) the amounts allocated to liability (long-term debt) and shareholders' equity and (2) the discount on the bond. You can ignore tax effects.



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  • CreatedJanuary 22, 2015
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