On August 1, 2017, Missouri Corporation issued $10 million of 8% nonconvertible

Question

On August 1, 2017, Missouri Corporation issued $10 million of 8% nonconvertible 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 Missouri Corporation’s $1 par common stock. On August 1, 2017, the market value per share for Missouri’s stock was $46 and the market value of each warrant was $6. The market price of the bonds cannot be clearly determined. Total proceeds allocated to the stock warrants are:

Please explain and show work.

A) $1,200,000 B) $200,000 C) $400,000 D) $460,000

Explanation / Answer

Solution:

Nos of bond issued = $10,000,000 / 1000 = 10000 bonds

Nos of stock warrants issued = 10000*20 = 200000

Market value of warrant = $6

Therefore proceeds allocated to stock warrants = 200000 * $6 = $1,200,000

Hence option A is correct.

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