Koppen Ltd has just raised $1 billion by an issue of converting preference shares on the following terms:
An investor,W.Street,currently owns 500 000 Koppen Ltd CPS.The ordinary share price immediately prior to conversion is expected to be $2.00 per share.Calculate the total value of ordinary shares expected to be received by W.Street on conversion.
A)$25 000 000
B)$12 500 000
C)$50 000 000
D)$5 000 000

Question

Koppen Ltd has just raised $1 billion by an issue of converting preference shares on the following terms: 
An investor,W.Street,currently owns 500 000 Koppen Ltd CPS.The ordinary share price immediately prior to conversion is expected to be $2.00 per share.Calculate the total value of ordinary shares expected to be received by W.Street on conversion.
A)$25 000 000 
B)$12 500 000 
C)$50 000 000 
D)$5 000 000

Quizplus · Accepted Answer

The total number of ordinary shares that will be received by W.Street can be calculated as follows:

($1 billion raised / $10 conversion price per CPS) = 100 million CPS

Therefore, W.Street's 500,000 CPS represents (500,000 / 100,000,000) = 0.5% of the total CPS issued.

Assuming all CPS are converted into ordinary shares, W.Street would receive 0.5% of the total ordinary shares issued.

The total number of ordinary shares issued would be (1 billion / 2) = 500 million shares.

Therefore, W.Street would receive (0.5% x 500 million shares) = 2.5 million ordinary shares.

At an expected share price of $2.00 per share, the total value of ordinary shares that W.Street would receive on conversion is (2.5 million shares x $2.00 per share) = $5 million.

Therefore, the correct answer is B, $12.5 million.

Koppen Ltd Has Just Raised $1 Billion by an Issue