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Hi
For part c of this question we are asked to calculate the % premium the shareholders will receive under each of three options. The last option is a cash offer per share plus one $100 convertible bond for every $5 nominal value of shares.
The answer calculates the premium based on a bond value of $100. I don’t understand why they are using book value as opposed to MV which would be pv of the cash flows and would depend on whether or not the conversion was likely.Thank you for your help!
You are correct, but the examiners answer does go on to explain this and say that the offer is probably worth more.
Oh ok – I saw that but wasn’t sure that was what was being referred to. So I suppose that was a shortcut since we didn’t have any further info.
thank you
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