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Acquisition proposals
A cash offer of $1·25 for each Strand Co share plus one $100 3% convertible bond for every $5 nominal value of Strand Co shares. In six years, the bond can be converted into 12 Hav Co shares or redeemed at nominal value.
when dealing Loan why shouldn’t we use market value instead of nominal value
Bonds are always repaid at their nominal value (unless there is repayment at a premium in which case the premium is based also on the nominal value).
igra Co proposes to pay for the acquisition using one of the following three methods:
Method 3
An offer of a 2% coupon bond in exchange for 16 Dentro Co’s shares. The bond will be redeemed in three years at its par value of $100.
sir i have seen that examiner has used different approaches when it comes to dealing bond offer. which is correct to use the MV and the nominal value. this question is flow up to the above one
thanks
It depends on the information in the question. You are going to have to tell me which question(s) you are referring to 🙂
June 2013 Q2 the examiner has used the Nominal value to Estimate the percentage gain on a share
December 2012 Q3 the examiner has used the MV of the bond to Estimate the percentage gain on a share
In both questions it would have been better to use the market value of the bonds (and if you had done that in the June 2013 question then that would have been fine and got full marks).
The examiners answer has not done that in the June 2013 question but in the discussion surrounding it, he has written that it would likely be higher making it even more attractive.
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