A company has issued 9% convertible bonds which are due to be redeemed in 5 years' time. They are currently quoted at $85 per $100 nominal. The bonds can be converted into 30 shares in 5 years' time. The share price is currently $4.00 and is expected to grow at a rate of 4% p.a. Assume a 35% rate of tax. Calculate the cost of the convertible debt
A company has issued 9% convertible bonds which are due to be redeemed in 5 years' time. They are currently quoted at $85 per $100 nominal. The bonds can be converted into 30 shares in 5 years' time. The share price is currently $4.00 and is expected to grow at a rate of 4% p.a. Assume a 35% rate of tax. Calculate the cost of the convertible debt
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 1PROB
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A company has issued 9% convertible bonds which are due to be redeemed in 5 years' time. They are
currently quoted at $85 per $100 nominal. The bonds can be converted into 30 shares in 5 years' time.
The share price is currently $4.00 and is expected to grow at a rate of 4% p.a. Assume a 35% rate of tax.
Calculate the cost of the convertible debt.
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