DEBENTURES, WARRANTS & VENTURE CAPITAL

JONLEN J.R.DESAM.COM-1

R.M/COM-11-06

Meaning of Convertible Debentures Features of Convertible Debentures Valuation of Convertible Debentures Meaning of Warrants Features of Warrants Valuation of Warrants Capital Venture- Meaning & Features Business Plan Elements

A Convertible Debenture is a debenture that can be changed into a specified number of equity shares at the option of the owner.

Definition

Debenture which can be converted into stock at the option of the holder at a specified date in the future. Because the buyer has the ability to convert the debenture into stock under certain circumstances, the seller is able to borrow at a lower cost than if the convertibility feature was not present.

1.CONVERSION RATIO-It is the no.of shares that an investor can receive when he exchanges his convertible debenture.

Conversion Ratio= Par value of Convertible Deb

Conversion Price 2.CONVERSION PRICE- It is the price

paid for the ordinary share at the time of conversion.

Conversion Value Conversion Value=Conversion Ratio x Sh

price

Valuation of Non-Convertible Debentures

It is also known as Straight Debenture. Value of NCD=Sum of the present value

of future interest payments & principal redemption at the required rate of return.

A Warrant is a derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame.

Warrants are often included in a new debt issue.

1) Exercise Price2) Exercise Ratio3) Expiration Date4) Detachability5) Right

1) Theoretical Value of a warrant can be found out if we know the ordinary share’s market price & warrant’s exercise price.

Theoretical Value= (Sh Price- Exercise Price)* Exercise Ratio.

2) Premium Value

It is the difference between the market value & the theoretical value of the warrant.

Premium=Warrant’s Market Value- Warrant's Theoretical Value

Warrant’s Theoretical Value

VC is an imp innovation of the 20th Century. Synonym of “Risk Capital”-Long term risk

Capt. It is considered as “ the early stage

financing of new & young enterprises to grow rapidly.

VC plays an imp role to finance SSE’s & high technology & risky capital.

VCs operate in Pub & Pvt Sectors. VC supports risky projects or ventures.

Equity ParticipationLong Term InvestmentParticipation in ManagementHigh Risk Involved

Executive Summary Background of the Venture The Product or the Service Market Analysis Marketing The management team Financial Projections

WEBSITES1. www.google.com2. www.investorwords.com3. www.investopidia.com4. En Wikipedia

REFRENCES Financial Management-I.M.Pandey Financial Management-M.Y.Khan, P.K.

Jain Business Finance-N.G. KALE