Consider the convertible bond by ABC Company:Par value = $1,000Coupon rate = 8.5%Market price of convertible bond = $900Conversion ratio = 30Estimated straight value of bond = $700Assume that the price of ABC Company's common stock is $25 and that the dividend per share is $1per annumCalculate each of the following:a) Conversion valueb) Market conversion pricec) Conversion premium per shared) Conversion premium ratioe) Premium over straight value

a) Conversion value refers to the value that a convertible security would have if it were converted…

Answered: Consider the convertible bond by ABC…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 4P

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Breuer Investment's convertible bonds have a $1,000 par value and a conversion price of $45 a share. What is the convertible issue's conversion ratio? Round your answer to two decimal places.
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A firm has an outstanding bond with a $1,000 par value that is convertible at $40 per share of common stock. If the current market value of common stock per share is $45, the conversion value of the bond is a. 1,000 b. 880 c. 1,125 d. 1,200
The following data apply to Neuman Corporation's convertible bonds: Maturity: 10 Stock price: $30.00 Par value: $1,000.00 Conversion price: $35.00 Annual coupon: 5.00% Straight-debt yield: 8.00% Refer to the data for the Neuman Corporation's convertible bonds. What is the bond's straight-debt value? a. $758.76 b. $838.63 c. $720.82 d. $798.70
Whiston Securities recently issued convertible bonds with a $1,000 parvalue. The bonds have a conversion price of $20 per share. What is the bonds’ conversionratio, CR?
A firm has an outstanding 15-year convertible bond issue with a P1,000 par value and a stated annual interest rate of 8 percent. The bond is convertible into 50 shares of common stock which has a current market price of P25. A straight bond could have been sold with a 11 percent stated interest rate. The straight value of the bond is (use 5 decimal places for the PV factor) Format: 111.11
Neuman Corporation Convertible BondsThe following data apply to Neuman Corporation's convertible bonds: Maturity: 10 Stock price: $30.00 Par value: $1,000.00 Conversion price: $35.00 Annual coupon: 5.00% Straight-debt yield: 8.00% Refer to the data for the Neuman Corporation's convertible bonds. What is the bond's straight-debt value? a. $758.76 b. $838.63 c. $720.82 d. $798.70
Consider the following information for Watson Power Co.: Debt: 4,500 7 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 108,000 shares outstanding, selling for $61 per share; the beta is 1.08. Preferred stock: 14,000 shares of 6.5 percent preferred stock outstanding, currently selling for $104 per share. Market: 9 percent market risk premium and 6 percent risk-free rate. Assume the company's tax rate is 34 percent. Find the WACC.
Consider the following information for Evenflow Power Co., Debt: 4,000 7.5 percent coupon bonds outstanding, $1,000 par value, 23 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Common stock: 100,000 shares outstanding, selling for $61 per share; the beta is 1.1. Preferred stock: 13,000 shares of 6.5 percent preferred stock outstanding, currently selling for $105 per share. Market: 9 percent market risk premium and 6 percent risk-free rate. Assume the company's tax rate is 32 percent. Required: Find the WACC. (Do not round your intermediate calculations.) Multiple Choice 11.21% 10.96% 11.63% 10.71% 10.81%
Craig's Cake Company has an outstanding issue of 13-year convertible bonds with a $800 par value. These bonds are convertible into 70 shares of common stock. They have a 12% annual coupon interest rate, whereas the interest rate on straight bonds of similar risk is 16%. a. Calculate the straight bond value of this bond. $629.05 b. Calculate the conversion (or stock) value of the bond when the market price is $23 per share of common stock. $1,610 c. What is the minimum market value of the bond? $ ? (Round to the nearest cent)
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A conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be: B . reported as a $1 million fi nancing cash outfl ow and infl ow.

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