CORPORATE FINANCE (LL)-W/ACCESS
11th Edition
ISBN: 9781259976360
Author: Ross
Publisher: MCG
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Textbook Question
Chapter 24, Problem 4QP
Convertible Bonds Hannon Home Products, Inc., recently issued $2 million worth of 3 percent convertible debentures. Each convertible bond has a face value of $1,000. Each convertible bond can be converted into 23.50 shares of common stock anytime before maturity. The stock price is $34.65, and the market
- a. What is the conversion ratio?
- b. What is the conversion price?
- c. What is the conversion premium?
- d. What is the conversion value?
- e. If the stock price increases by $2, what is the new conversion value?
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On January 1, 2018, when its $30 par value common stock was selling for $60 per share, a corporation issued $30 million of 12% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporation’s $30 par value common stock. The debentures were issued for $31 million. At the time of issuance, the present value of the bond payments was $28.50 million, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2019, the corporation’s $30 par value common stock was split 3 for 1. On January 1, 2020, when the corporation’s $10 par value common stock was selling for $70 per share, holders of 40% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method…
Susan Company issued 5,000 convertible bonds on January 1, 2006. the bonds have a three-year term and are issued at 110 with a face value of P1,000 per bond. Interest is payable annually in arrears at a nominal 6% interest rate. Each bond is convertible at anytime up to maturing into 100 common shares with par value of P5. When the bonds are issued, the prevailing market interest rate of similar debt instrument without conversion option is 9%. Use two decimal points.
What is the equity component of the issuance of the convertible bonds on January 1, 2006?
(Bond valuation relationships) Stanley, Inc. issues
10-year
$1,000
bonds that pay
$85
annually. The market price for the bonds is
$1,034.
The market's required yield to maturity on a comparable-risk bond is
8
percent.
a. What is the value of the bond to you?
b. What happens to the value if the market's required yield to maturity on a comparable-risk bond (i) increases to
12
percent or (ii) decreases to
6
percent?
c. Under which of the circumstances in part b should you purchase the bond?
Question content area bottom
Part 1
a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is
8
percent?
$enter your response here
(Round to the nearest cent.)
Chapter 24 Solutions
CORPORATE FINANCE (LL)-W/ACCESS
Ch. 24 - Prob. 1CQCh. 24 - Prob. 2CQCh. 24 - Convertible Bonds and Stock Volatility Suppose you...Ch. 24 - Convertible Bond Value What happens to the price...Ch. 24 - Prob. 5CQCh. 24 - Warrants and Convertibles What is wrong with the...Ch. 24 - Warrants and Convertibles Why do firms issue...Ch. 24 - Convertible Bonds Why will convertible bonds not...Ch. 24 - Convertible Bonds When should a firm force...Ch. 24 - Conversion Price A convertible bond with a par...
Ch. 24 - Conversion Ratio A convertible bond with a par...Ch. 24 - Conversion Premium Eckely, Inc., recently issued...Ch. 24 - Convertible Bonds Hannon Home Products, Inc.,...Ch. 24 - Prob. 5QPCh. 24 - Convertible Bond Value An analyst has recently...Ch. 24 - Convertible Bond Value Sportime Fitness Center,...Ch. 24 - Convertible Bonds You own a callable, convertible...Ch. 24 - Prob. 9QPCh. 24 - Convertible Bonds Vital Silence Corp. bas just...Ch. 24 - Convertible Bonds Rob Stevens is the chief...Ch. 24 - Prob. 12QPCh. 24 - Prob. 13QPCh. 24 - Prob. 14QPCh. 24 - Warrant Value Superior Clamps, Inc., has a capital...Ch. 24 - Prob. 16QPCh. 24 - SS AIR'S CONVERTIBLE BOND Chris Guthrie was...Ch. 24 - What is the floor value of the SS Air convertible...Ch. 24 - What is the conversion ratio of the bond?Ch. 24 - What is the conversion premium of the bond?Ch. 24 - What is the value of the option?Ch. 24 - Is there anything wrong with Todds argument that...Ch. 24 - Is there anything wrong with Marks argument that a...Ch. 24 - Prob. 8MCCh. 24 - During the debate, a question comes up concerning...
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