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Hi, need help for this question urgently.
A company issues for cash 50000 shares of $5 each at a premium of $15 each and $300000 4% debentures.
By what amount will the net assets of the company increase?My calculation:
50000 shares X $5 = $250,000
50000shares X $15 = $750,000
Debentures = $300,000
$1,300,000
Am I correct? the answer is $1,000,000…….how ar?The long-term capital will indeed increase by 1,300,000.
However, the definition of net assets is total assets less total liabilities.
The issue of debentures will increase the cash by 300,000 but will also increase (long-term) liabilities by 300,000.
So the only increase in net assets is the cash raised from the issue of shares which is 1,000,000.
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