Might be out of the syllabus but related to the topics. I have been thinking about this doubt for some time now. It goes as follows:
A company wants to raise finance for a certain project. It decides to do that through issuing Convertible Debentures. It states at the time of issue that the bond will be an 8%; Convertible Debenture Bond for the period of 8 years. And then, 10% Preference Shares would be allotted in the ratio of 1:1. (The Face Value of Bond and Preference Share is the same). These Preference Shares are irredeemable shares (assuming the company is raising funds outside of India). How do we calculate the Net Present Value for this problem? Also, is there a way to get the IRR for these kinds of problems?
Is the Investment Option a good choice for an Investor (Retail or Institutional)? And what would be a better option for the company (either to issue bonds and repay them after 8 years OR to issue 10% Preference Shares after the expiry of the Bond Period)?
Any Values taken for solving the problem would be appreciated. Not putting the values due to having no experience in this kind of problem. (Suggestion for Values: Debentures’ Face Value = Preference Shares’ Face Value = ₹1,000, Discounting Factor OR Inflation Rate = 5%)
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