On August 1, 2013 Kitkat Corporation issued $10 million of 8% nonconvertable bon

Question

On August 1, 2013 Kitkat Corporation issued $10 million of 8% nonconvertable bonds at 104. The bonds mature in 20 years. Each $1,000 bond was issued with 20 detachable stock warrants.Each warrant entitles the holder to purchase for $50 one share of Kitkat Corporation's $1 par common stock. On August 1, 2013 the market value per share for Kitkat's stock was $46 and the market value of each warrant was $6. The bonds market price cannot be determined.

What is the total proceeds allocated to the stock warrants?

Explanation / Answer

Answer:Calculation of the total Proceeds allocated to the stock warrants:

Combined Issue Price: 10000*$1000 × 1.04 = $10400,000

FV of Bonds: 10000*1000*× .46= $4600,000

FV of Warrants: 10000*20 × $6= $1200,000

Total FV: $4600,000 + $1200,000 = $5800000

Proceeds allocated to warrants=(1200000/5800000)* $10400,000

=$2151724.14

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.