Example of conversion ratio and conversion price, Finance Basics

Example of Conversion Ratio and Conversion Price

ABC Company Ltd books as:

 

10.000, Sh.20 ordinary share capital

10,000, Shs.10 8% preference share capital

5,000, Shs.100 12% debentures

The above debentures are due for conversion:

Shs.

200,000

100,000

500,000

Required

i) Calculate the conversion price

ii) Calculate the conversion ratio

iii) Calculate new capital structure.

Solution

i) Conversion price = par value of debenture/No. of shares to be obtained.

No. of shares to be obtained        =          100:20 = 5:1

Therefore 100/5=20

ii) Conversion ratio = par value of debenture/par value of share = 100/20=5.0

Obtain 5 ordinary shares for every 1 debenture held.

iii) New capital structure

No. of new ordinary shares          =          5000 x 5 =     25,000

                                                                                       Shs.

35,000, Shs.20 ordinary shares                                      700,000

10,000, Shs.10, 8% preference shares                           100,000

Total capital                                                                     800,000

 

Posted Date: 1/29/2013 5:28:57 AM | Location : United States







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