Compute the straight bond value of each of the debentures

Assignment Help Corporate Finance
Reference no: EM13926626

Nullcom, Inc., has debentures (face value ¼ $1,000) outstanding that are convertible into common stock at a price of $40 per share. The debentures pay an interest rate of 9 percent per annum and have a remaining life of 10 years. Nonconvertible debentures of a similar credit rating and maturity are selling at a price to yield 11 percent. The current price of a share of Nullcom's stock is $35.

a. Compute the straight bond value of each of these debentures.

b. Compute the conversion value of each of these debentures.

c. What is the absolute minimum price for one of these debentures today? What price would you expect to pay for one of these debentures?

d. If the debentures are called at 105 today and you own 10 of these debentures, what action should you take?

¦ Nonhedging strategies that managers use to control risk include the acquisition of additional information; diversification; the purchase of insurance; the use of patents, copyrights, and other forms of legal protection of intellectual property; and the limited use of firm-specific assets.

¦ A hedge is a transaction that limits the risk associated with fluctuations in the price of a commodity, currency, or financial instrument. A hedge is accomplished by taking offsetting positions in the ownership of an asset or security through the use of derivative securities, such as forward contracts, futures contracts, and options.

¦ A forward contract is an agreement to buy or sell an asset at some point in time in the future at a price agreed to at the time the forward contract is purchased or sold. Forward contracts can be executed for any quantity of any asset for any maturity date. Consequently, they are not highly liquid. Forward contracts frequently have an element of performance risk from the counterparty to the contract.

¦ A futures contract is a standardized contract, traded on an organized exchange, to buy or sell an asset at a specified future time at a specified price. Because it is standardized with respect to quantity, quality, and delivery date and place, futures contracts are highly liquid. Exchange procedures eliminate performance risk from the counterparty to the contract.

¦ A long hedge involves the purchase of a forward or futures contract to cover required future purchases of a commodity or currency. Short hedges involve the sale of a forward or a futures contract to cover a required future sale of a commodity or currency. Call options can be used to hedge future purchase requirements, and put options can be used to hedge future sales commitments.

Reference no: EM13926626

What is minimum amount of revenue they could hope to receive

If Shining Rock does not hedge these sales, what is the maximum amount of total revenue they could hope to receive based on prices over the past year? What is the minimum am

Calculate mcphersons earnings per share

Calculate McPherson's earnings per share if the McAlester stockholders accept one $6 convertible preferred share (stated value, $100) for each 5 shares of McAlester stock he

Show by calculation the discount rate for the mileage

Show by calculation (creating a formula) the discount rate for the mileage alternative at which (assuming all else the same as in the instructions above) Robotic Vehicles Lt

Us securities and exchange commission

Once the instructor has approved the company selection, obtain the Annual Report (Form 10K) and Proxy Statement (Form DEF 14A) of the company for the immediate past fiscal y

Determine the impact of the sarbanes-oxley act

Conduct research to determine the impact of the Sarbanes-Oxley Act (SOX), Generally Accepted Accounting Principles (GAAP), Generally Accepted Auditing Standards (GAAS), and

Calculate the internal rate of return

Calculate the Weighted Average Cost of Capital (WACC) for Stay Young - Identify what you believe are the two key factors for the success of this project and prepare two sensi

Calculate price and usage variances for each material

Calculate price and usage variances for each material. Calculate labour rate and efficiency variances. Calculate fixed production overhead expenditure and volume variances and

Calculate the labour total variance and labour rate variance

Calculate the following variances. The labour total variance, The labour rate variance, The idle time variance and The labour effi

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd