Table Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $65 per share, and each bond would have 80 warrants attached to it, each exercisable into one share of stock at an exercise price of $72. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.2. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.81% b. 8.68% c. 8.47% d. 7.93% e. None of the above

Table Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $65 per share, and each bond would have 80 warrants attached to it, each exercisable into one share of stock at an exercise price of $72. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.2. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.81% b. 8.68% c. 8.47% d. 7.93% e. None of the above

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter20: Hybrid Financing: Preferred Stock, Warrants, And Convertibles

Section: Chapter Questions

Problem 1P: Neubert Enterprises recently issued $1,000 par value 15-year bonds with a 5% coupon paid annually...

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Neubert Enterprises recently issued $1,000 par value 15-year bonds with a 5% coupon paid annually and warrants attached. These bonds are currently trading for $1,000. Neubert also has outstanding $1,000 par value 15-year straight debt with a 7% coupon paid annually, also trading for $1,000. What is the implied value of the warrants attached to each bond?
Waylan Sisters Inc. issued 3-year bonds with a par value of $100,000 and a 6% annual coupon when the market rate of interest was 5%. If the bonds sold at 102.438, how much cash did Williams Sisters Inc. receive from issuing the bonds?
Preissle Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $42 per share, and each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $47. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.00 given that the stock sells for $42. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.83% b. 8.24% c. 9.54% d. 9.08% e. 8.65%
Preissle Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $42 per share, and each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $47. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.00 given that the stock sells for $42. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.83% b. 8.24% c. 9.54% d. 9.08% e. 8.65% QUESTIONS REGARDING SOLUTION IN PHOTO: 1. Where does 0.05 come from? 2. How do you get to the 40th power? 3. When calculating the coupon, where does 1.05 come from? 4. How do you go from coupon to coupon rate?
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