Chitrakoot India Ltd issues a partly convertible debenture for Rs.900, carrying an interest rate of 12 percent. Rs.300 will get compulsorily converted into two equity shares of Chitrakoot India Ltd a year from now. The expected price per share of Chitrakoot India Ltd's equity a year from now would be Rs.200. The non-convertible portion will be redeemed in three equal installments of Rs. 200 each at the end of years 4, 5 and 6 respectively. The tax rate for Chitrakoot India Ltd is 35 percent and the net price per share Chitrakoot India Ltd would realise for the equity after a year would be Rs. 180. What is the value convertible debenture? Assume that the investors' required rate of return on the debt component and the equity component are 12 percent and 16 percent respectively.
Chitrakoot India Ltd issues a partly convertible debenture for Rs.900, carrying an interest rate of 12 percent. Rs.300 will get
compulsorily converted into two equity shares of Chitrakoot India Ltd a year from now. The expected price per share of
Chitrakoot India Ltd's equity a year from now would be Rs.200. The non-convertible portion will be redeemed in three equal
installments of Rs. 200 each at the end of years 4, 5 and 6 respectively. The tax rate for Chitrakoot India Ltd is 35 percent
and the net price per share Chitrakoot India Ltd would realise for the equity after a year would be Rs. 180.
What is the value convertible debenture? Assume that the investors' required
the equity component are 12 percent and 16 percent respectively.
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