CMA Intermediate · Financial Management and Business Data Analytics · Sources of Finance
Arjun Pharma Ltd. has convertible debentures of face value ₹1,000, each convertible into 25 equity shares. The market price of the equity share is ₹48. What is the conversion value of one debenture and is it above or below face value?
The conversion value is 25 shares multiplied by ₹48, which equals ₹1,200. Since this is higher than the ₹1,000 face value, the conversion value is above face value and conversion would give the holder a gain.
- A₹1,200, above face valueCorrect
- B₹1,000, equal to face value
- C₹1,920, above face value
- D₹1,200, below face value
Explanation
Conversion value = conversion ratio × market price of share = 25 × ₹48 = ₹1,200. This exceeds the face value of ₹1,000, so conversion is attractive. ₹1,920 comes from wrongly using 40 shares, which is not in the data.
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