ExpertMedium2 marksMultiple Choice
ACCA · Question 21.3 · 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 3: The convertible bonds currently trade at $115. Each bond can be converted into 20 ordinary shares. The current share price is $5.00.
What is the conversion premium per share?
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 3: The convertible bonds currently trade at $115. Each bond can be converted into 20 ordinary shares. The current share price is $5.00.
What is the conversion premium per share?
Answer options:
A.
$0.50
B.
$0.75
C.
$1.00
D.
$15.00
How to approach this question
Calculate the current conversion value (number of shares × current share price). Subtract this from the current market price of the bond to find the total premium. Divide by the number of shares to find the premium per share.
Full Answer
B.$0.75✓ Correct
Current conversion value = 20 shares × $5.00 = $100.
Total conversion premium = Market price of bond - Conversion value = $115 - $100 = $15.
Conversion premium per share = Total premium / Number of shares = $15 / 20 = $0.75.
Common mistakes
Selecting $15.00 (Option D), which is the premium for the whole bond, not per share as requested.
Practice the full ACCA FM — Financial Management Practice Exam 5
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