CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

BWT Inc. shows the following data in its financial statements at the end of the year. Assume all securities were outstanding at the beginning of the year.

  • 6.125% convertible bond, convertible into 33 shares of common stock. Issue price $1,000, 100 bonds outstanding.
  • 6.25% convertible preferred stock, $100 par, 3,710 shares outstanding. Convertible into 3.3 shares of common stock, issue price $100.
  • 8% convertible preferred stock, $100 par, 5,604 shares outstanding. Convertible into 5 common shares, issue price $80.
  • 12,380 warrants are outstanding with an exercise price of $40. Each warrant is convertible into 1 share of common stock.
  • Average market price of common stock is $53.00 per share. Common shares outstanding at the beginning of the year were 45,888.
  • Net income for the period was $200,000 while the tax rate was 40%.

What was the after-tax interest charge?
A. $2,021
B. $3,675
C. $2,450
Explanation: (100 bonds)($61.25 interest per bond) = $6,125 interest paid ($6,125)(1-.4) = $3,675 interest

User Contributed Comments 2

User Comment
Bibhu After tax interest charge is only applicable in case of bonds in this example.
Dinosaur don't include the preferred
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