ExpertACCA · Question 21.2 · Business Finance
Section B - Case 2: Quantum Mesh Inc
Scenario: Quantum Mesh Inc is a tech startup developing AI-driven satellite mesh networks. A venture capital firm is considering a buyout. Quantum Mesh has an operating profit (EBIT) of $5m, depreciation of $1m, and a corporate tax rate of 20%. Capital expenditure for the year was $1.5m, and working capital increased by $0.5m.
Question 2: Quantum Mesh previously issued convertible bonds. The bonds have a nominal value of $100, a coupon rate of 5%, and 3 years to maturity. Similar non-convertible debt yields 8%.
What is the 'floor value' of one convertible bond? (Discount factors at 8%: Yr 1-3 annuity = 2.577, Yr 3 PV = 0.794)
Section B - Case 2: Quantum Mesh Inc
Scenario: Quantum Mesh Inc is a tech startup developing AI-driven satellite mesh networks. A venture capital firm is considering a buyout. Quantum Mesh has an operating profit (EBIT) of $5m, depreciation of $1m, and a corporate tax rate of 20%. Capital expenditure for the year was $1.5m, and working capital increased by $0.5m.
Question 2: Quantum Mesh previously issued convertible bonds. The bonds have a nominal value of $100, a coupon rate of 5%, and 3 years to maturity. Similar non-convertible debt yields 8%.
What is the 'floor value' of one convertible bond? (Discount factors at 8%: Yr 1-3 annuity = 2.577, Yr 3 PV = 0.794)
Answer options:
$85.50
$92.29
$100.00
$108.00
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