CA Intermediate · Financial Management and Strategic Management · Types of Financing
Kaveri Ltd issues 10,000 convertible debentures of ₹100 each at par. Each debenture is convertible into 4 equity shares of ₹10 each at the end of the period. The current market price of the share is ₹20. What is the conversion value of one debenture at current market price?
The conversion value of one debenture is ₹80. It is calculated by multiplying the four equity shares received on conversion by the current market price of ₹20 per share. The face value of the shares or debenture is not used for this measure.
- A₹80Correct
- B₹100
- C₹40
- D₹20
Explanation
Conversion value = number of shares per debenture × market price per share = 4 × ₹20 = ₹80. ₹40 wrongly uses face value ₹10 per share; ₹100 is the debenture's face value, not its conversion value.
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