Nosam Ltd has just raised $100 million by an issue of 5 million converting preference shares.If each CPS converts into 20 ordinary shares on conversion,calculate the value of the ordinary shares received in exchange for each converting preference share.Assume the conversion discount is 5 per cent.
A)$20.00
B)$21.05
C)$105.20
D)$101.00

Question

Quizplus · Accepted Answer

The total number of ordinary shares to be issued upon conversion is 5 million x 20 = 100 million.

The value of the ordinary shares received in exchange for each CPS can be calculated as follows:

Conversion price = $100 million / 5 million CPS = $20 per CPS

With a conversion discount of 5%, the effective conversion price is $20 x 95% = $19 per CPS

Therefore, each CPS converts into 20 ordinary shares at a price of $19 per share, giving a value of $380 per CPS in ordinary shares.

The value of each ordinary share received in exchange for each CPS is therefore $380 / 20 = $21.05.

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