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?

a)$460,000

b)$400,000

c)$1,200,000

d)$200,000

Explanation / Answer

correct option is "C" - 1,200,000

Number of warrant = amount raised * number of warrant per $/ $bond value

                             = 10,000,000 * 20/1000

                               = 200,000 warrants

Market value = 6* 200,000 = 1,200,000

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