CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions
Sundaram Textiles Ltd issued FCCBs of USD 2,000,000 at par, each USD 1,000 bond convertible into shares at a conversion price of Rs 250 per share, using a fixed conversion exchange rate of Rs 75 per USD. How many equity shares will be issued if all the bonds are converted?
Converting USD 2,000,000 at Rs 75 gives Rs 15 crore. Dividing by the conversion price of Rs 250 per share yields 600,000 equity shares. Skipping the exchange rate and dividing dollars by a rupee price would give a wrong figure.
- A600,000 sharesCorrect
- B8,000 shares
- C2,666,667 shares
- D150,000 shares
Explanation
Rupee value of bonds = 2,000,000 x 75 = Rs 15,00,00,000. Shares = 15,00,00,000 / 250 = 600,000. Check: 600,000 x 250 = Rs 15 crore. Dividing the USD amount by 250 directly gives 8,000, which wrongly ignores the currency conversion.
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