Determine equity components of the convertible notes

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Reference no: EM132552033

On 1 July 2015 Sunshine Ltd issues convertible notes with a face value of $20 million. The convertible notes have a 12-year term and mature on 30 June 2027. Interest is payable semi annually in arrears, 30 December and 30 June each year. The coupon rate of interest is 12% annually. At around the same point in time, companies with a similar credit rating issue debt security without a conversion option with a coupon rate of 16% payable annually.

Require

Question 1: Determine the debt and equity components of the convertible notes issued using the residual valuation method.

Question 2: Prepare an amortisation table of the convertible note liability for the period 1 July 2015 to 30 June 2018

Reference no: EM132552033

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