1. Why is 0.7 used to compute for the PV of the principal?
2. Why is 4 used to compute for the PV of interest payments?
3. Why is 7.48% used to compute for the interest expense?
Extracted text: Total Proceeds (P1,000 x 1,000) Less: Fair value of the bonds without conversion privilege 1,000,000 900,000 100,000 Total Share Premium (A) Using 7.48% Present value of Principal (1,000,000 x 0.7 ) Add: Present value of interest payments (50,000 x 4) Total present value 700,000 200,000 900,000
Extracted text: On January 1, 2021, Lanao del Norte Company Co. issues convertible bonds with a maturity of five years. The issue is for a total of 1,000 convertible bonds. Each bond has a par value of P1,000, a stated interest rate of 5% per year, and is convertible into 5 ordinary shares of Lanao del Norte Company. The convertible bonds were issued to Lanao del Sur Company at par. The per-share price of Lanao del Norte share is P15. Quotation for similar bonds issued by Lanao del Norte without the conversion privilege suggest that they can be sold for P900,000.