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nadette Naldo has been considering investing in the bonds of ABD Industries. The bond: were issued 5 years ago at their PhP1,000 par value and have exactly 25 years remaini until they mature. They have an 8% coupon interest rate, are convertible into 50 share of common stock, and can be called any time at PhP1,080. The bond is rated Aa. forting Goods recently acquired a small athletic-

nadette Naldo has been considering investing in the bonds of ABD Industries. The bond: were issued 5 years ago at their PhP1,000 par value and have exactly 25 years remaini until they mature. They have an 8% coupon interest rate, are convertible into 50 share of common stock, and can be called any time at PhP1,080. The bond is rated Aa. forting Goods recently acquired a small athletic-

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Review View Acrobat Insert Page Layout N19 G K H F D A 1 3 2 Bernadette Naldo has been considering investing in the bonds of ABD Industries. The bonds were issued 5 years ago at their PhP1,000 par value and have exactly 25 years remaining until they mature. They have an 8% coupon interest rate, are convertible into 50 shares of common stock, and can be called any time at PhP1,080. The bond is rated Aa. 4 1 ABD Industries, a manufacturer of sporting goods, recently acquired a small athletic- wear company that was in financial distress. As a result of the acquisition, rating agencies that inflation, are considering a rating change for ABD Bonds. Recent economic data sugge currently at 5% annually, is likely to increase to 6% annual rate. Bernadette remains interested in the ABD bond but is concerned about inflation, a potential rating change and maturity risk. In order to get a feel for the potential impact of these factors on the bond value, she decided to apply the valuation techniques she learned in her finance course. Required: a. If price of the common stock into which the bond is convertible rises to PhP30 per share after 5 years and the issuer calls the bonds at PhP1,080, should Bernadette let the bond be Shot on OnePlus or should she convert it into common stock? Powered by Triple Camera File Home Formulas Data
Transcribed Image Text:Review View Acrobat Insert Page Layout N19 G K H F D A 1 3 2 Bernadette Naldo has been considering investing in the bonds of ABD Industries. The bonds were issued 5 years ago at their PhP1,000 par value and have exactly 25 years remaining until they mature. They have an 8% coupon interest rate, are convertible into 50 shares of common stock, and can be called any time at PhP1,080. The bond is rated Aa. 4 1 ABD Industries, a manufacturer of sporting goods, recently acquired a small athletic- wear company that was in financial distress. As a result of the acquisition, rating agencies that inflation, are considering a rating change for ABD Bonds. Recent economic data sugge currently at 5% annually, is likely to increase to 6% annual rate. Bernadette remains interested in the ABD bond but is concerned about inflation, a potential rating change and maturity risk. In order to get a feel for the potential impact of these factors on the bond value, she decided to apply the valuation techniques she learned in her finance course. Required: a. If price of the common stock into which the bond is convertible rises to PhP30 per share after 5 years and the issuer calls the bonds at PhP1,080, should Bernadette let the bond be Shot on OnePlus or should she convert it into common stock? Powered by Triple Camera File Home Formulas Data
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