KIKO Bhd. issued RM50 million of 5% bonds which are redeemable at their par value of RM100 in 7 years time. Alternatively, each bond can be converted into 20 ordinary shares of the company within the next 5 years. The share price of KIKO is RM6 after 5 years. The companys cost of debt is 3% per annum.

Analyse:

(i) The market value for each RM100 convertible bond if conversion is likely to take place.

(ii) The floor value for each RM100 convertible bond.

(iii) The number of additional shares will KIKO need to issue if the bondholders do convert the bonds.

(7 marks)