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An entity issues Perpetual Bond of $500 million in nominal value. The salient features of the Perpetual Bond are as follow:- The Perpetual Bond has
- An entity issues Perpetual Bond of $500 million in nominal value. The salient features of the Perpetual Bond are as follow:-
- The Perpetual Bond has no fixed maturity date and the Company has an option to redeem all or part of the Perpetual Bond at the end of the fifth year and thereafter;
- The Perpetual Bond carries a periodic distribution rate of 6% per annum;
- Deferred periodic distribution, if any, will be cumulative but will not earn additional profits.
Required:
Discuss should the above instrument to be classified either as debt or as equity. Appropriate quotes from the relevant standard are expected to support your answer.
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M: Finance
Authors: Marcia Cornett, Troy Adair, John Nofsinger
5th Edition
1260772357, 9781260772357
