EBK PRINCIPLES OF MANAGERIAL FINANCE
15th Edition
ISBN: 8220106777916
Author: SMART
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 17, Problem 17.14P
Determining values: Convertible bond Craig’s Cake Company has an outstanding issue of 15-year convertible bonds with a $1,000 par value. These bonds are convertible into 80 shares of common stock. They have an 8% annual coupon rate, whereas the interest rate on straight bonds of similar risk is 10%.
- a. Calculate the straight
bond value of this bond. - b. Calculate the conversion (or stock) value of the bond when the market price is $9, $12, $13, $15, and $20 per share of common stock.
- c. For each of the common stock prices given in part b, at what price would you expect the bond to sell? Why?
- d. Make a graph of the straight value and conversion value of the bond for each common stock price given. Plot the per-share common stock prices on the x-axis and the bond values on the y-axis. Use this graph to indicate the minimum market value of the bond associated with each common stock price.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Chapter 17 Solutions
EBK PRINCIPLES OF MANAGERIAL FINANCE
Ch. 17.1 - Prob. 17.1RQCh. 17.2 - What is leasing? Define, compare, and contrast...Ch. 17.2 - Describe the four basic steps involved in the...Ch. 17.2 - What type of lease must be treated as a...Ch. 17.2 - Prob. 17.5RQCh. 17.3 - What is the conversion feature? What is a...Ch. 17.3 - When the market price of the stock rises above the...Ch. 17.3 - Define the straight bond value, conversion (or...Ch. 17.4 - What are stock purchase warrants? What are the...Ch. 17.4 - Prob. 17.10RQ
Ch. 17.4 - Prob. 17.11RQCh. 17.5 - Prob. 17.12RQCh. 17.5 - How can the firm use currency options to hedge...Ch. 17 - N and M Corp, is considering leasing a new machine...Ch. 17 - During the past 2 years Meacham Industries issued...Ch. 17 - Newcomb Company has a bond outstanding with a...Ch. 17 - Crystal Cafes recently sold a 1,000-par-value, 1...Ch. 17 - A 6-month call option on 100 shares of SRS Corp...Ch. 17 - Prob. 17.1PCh. 17 - Prob. 17.2PCh. 17 - Loan payments and interest Schuyler Company wishes...Ch. 17 - Prob. 17.4PCh. 17 - Prob. 17.5PCh. 17 - Lease-versus-purchase decision Joanna Browne is...Ch. 17 - Capitalized lease values Given the lease payments,...Ch. 17 - Conversion price Calculate the conversion price...Ch. 17 - Conversion ratio What is the conversion ratio for...Ch. 17 - Conversion (or stock) value What is the conversion...Ch. 17 - Conversion (or stock) value Find the conversion...Ch. 17 - Straight bond value Calculate the straight bond...Ch. 17 - Determining values: Convertible bond Eastern Clock...Ch. 17 - Determining values: Convertible bond Craigs Cake...Ch. 17 - Prob. 17.18PCh. 17 - Prob. 17.23P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?arrow_forwardNeubert 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?arrow_forwardGoodwynn & Wolf Incorporated (G&W) issued a bond 7 years ago. The bond had a 20-year maturity, a 14% coupon paid annually, a 9% call premium and was issued at par, $1,000. Today, G&W called the bonds. If the original investors had expected G&W to call the bonds in 7 years, what was the yield to call at the time the bonds were issued?arrow_forward
- 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?arrow_forwardBond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a 1,000 par value, a 10% coupon rate, and semiannual interest payments. a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell? b. Suppose that 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell? c. Suppose that 2 years after the issue date (as in Part a) interest rates fell to 6%. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?arrow_forwardKrystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Journalizing Bonds Payable/Amortization of a Premium; Author: TLC Tutoring;https://www.youtube.com/watch?v=5gEpAFFnIE8;License: Standard YouTube License, CC-BY
Investing Basics: Bonds; Author: TD Ameritrade;https://www.youtube.com/watch?v=IuyejHOGCro;License: Standard YouTube License, CC-BY