XYZ Ltd issued $25 million of convertible notes on 1 July 2019. The notes have a life of 6 years and a face value of $25 each. Annual interest of 4% is payable at the end of each year. The notes were issued at their face value and can be converted at any time over their lives. Organisations with a similar risk profile to XYZ Ltd have issued debt with similar terms but without the option to convert at the rate of 7%.

Required:

Calculate the present value of liability and equity component of convertible notes on 1stJuly 2019.