Chifuchichi is a farming privately owned company based in Serenje with plans to cultivate 1035 hectors of farm land in Nansanga farm block. The farm equipment is to be purchased at a cost of K110m. To raise these funds, Chifuchichi is planning to issue a three year 8% K50m convertible bond at par. The bond will be converted on the 1^st of January 2021 at two shares per bond. Chifuchichi current earnings per share is 185 ngwee and the company just paid a dividend of 90 ngwee per share. The current investors required rate of return 10%.

The stock market rate is 12%.

Required

1. Prepare liability and finance cost extracts for each of the three years of the bond. (10 marks)
2. Account for the conversion assuming that the growth rate remains unchanged in three years time. (10 marks)
3. Comment on the private placement and its advantages to chifuchichi (5 marks)

(Total; 25 marks)