Assume the firm’s stock now sells for $30 pershare. The company wants to raise $20million by issuing 20-year, annual interest, $1,000 par value bonds. Each bond will have 40 warrants attached,each exercisable into 1 share of stock at an exercise price of $36. The firms straight bonds yield 8%. Each warrant is expected to have a marketvalue of $0.75 when the stock sells at $30.The company wants to establish a coupon interest rate and dollar couponto ensure that the bonds will clear the market. a.Calculate the value of the debt portion of the bonds with warrants.Stock price $30 Bonds-life and par value 20Par value $1,000 # of warrants per bond40Exercise price $36Warrant market value @ P=$30) $0.75Yield on straight bonds 8% b.Calculate the dollar coupon amount per bond with warrants..Calculate the coupon interest rate that should be set on the bonds withwarrants.d.Identify 3 advantages to the company of issuing a bond with warrantsinstead of straight bonds.e.Identify 3 advantages to the investor of buying a bond with warrantsinstead of straight bonds
Assume the firm’s stock now sells for $30 per
share. The company wants to raise $20
million by issuing 20-year, annual interest, $1,000 par
each exercisable into 1 share of stock at an exercise price of $36. The firms straight bonds yield 8%. Each warrant is expected to have a market
value of $0.75 when the stock sells at $30.
The company wants to establish a coupon interest rate and dollar coupon
to ensure that the bonds will clear the market.
a.
Calculate the value of the debt portion of the bonds with warrants.
Stock price $30
Bonds-life and par value 20
Par value $1,000
# of warrants per bond40
Exercise price $36
Warrant market value @ P=$30) $0.75
Yield on straight bonds 8%
b.
Calculate the dollar coupon amount per bond with warrants.
.
Calculate the coupon interest rate that should be set on the bonds with
warrants.
d.
Identify 3 advantages to the company of issuing a bond with warrants
instead of straight bonds.
e.
Identify 3 advantages to the investor of buying a bond with warrants
instead of straight bonds
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