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ZEN Inc. is financed by 3 million shares of common stock and by $5 million face...

ZEN Inc. is financed by 3 million shares of common stock and by $5 million face value of 8% convertible debt maturing in 2026. Each bond has a face value of $1,000 and a conversion ratio of 200. What is the value of each convertible bond at maturity if ZEN’s net assets are:

  1. $30 million?
  2. $4 million?
  3. $20 million?
  4. $5 million?

Solutions

Expert Solution

It was given that each Bond will be converted into 200 Shares and we have

No.of bond co having =$5,000,000 / $1,000)=5000 bonds

Equal no.of share for 5,000 Bonds = 1,000,000 Shares (5,000 Bonds * 200 Shares / Bond)

Existing Shares = 3,000,000 Shares

Total Shares after conversion in 2026 = (1,000,000 + 3,000,000)=4000,000

A) Value of bond when Net asset is 30 million

Value of Each Bond = (Net Assets / No. of Equity Share) * No. of share in one Bond

= ($30,000,000 / 4,000,000 Shares) * 200 Shares per bond

Value of Bond = $1,500

B) Value of bond when Net asset is 4 million

Value of Bond = (Net Assets / No. of Equity Share) * No. of share in one Bond

= ($4,000,000 / 4,000,000 Shares) * 200 Shares per bond

Value of bond = $200

C) Value of bond when Net asset is 20 million

Value of Bond = (Net Assets / No. of Equity Share) * No. of share in one Bond

= ($20,000,000 / 4,000,000 Shares) * 200 Shares per bond

Value of Each Bond = $1,000

D) Value of bond when Net asset is 5 million

Value of Bond = (Net Assets / No. of Equity Share) * No. of share in one Bond

= ($5,000,000 / 4,000,000 Shares) * 200 Shares per bond

Value of Each Bond = $250

jeff jeffy answered 6 months ago
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