Interested in issuing bonds with warrants

Assignment Help Financial Management

Reference no: EM131524339

McGovern Enterprises is interested in issuing bonds with warrants attached. The bonds will have a 30-year maturity and annual interest payments. Each bond will come with 20 warrants that give the holder the right to purchase one share of stock per warrant. The strike price on the warrants is $15 and 5 years until expiration. The invesment bankers estimate that each warrant will have a value of $8.75. A similar straight-debt issue would require a 10% coupon. Assume McGovern Enterprises has 10 million shares today, with cost of stocks of 15.7%. Also assume that the value of operations is currently $350 million and is expected to grow at a rate of 6% per year

1. What coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000?

2. If the warrant is exercised, will the firm recieve new cash proceeds? If so, how much?

3. What should be the stock price after the warrants are exercised.

Reference no: EM131524339

Questions Cloud

Should the firm purchase the new machine : The company’s marginal tax rate is 35% and it has a wacc of 12%. Should the firm purchase the new machine?

Solve the birthday problem : Use simulation to solve the Birthday Problem using the data file ObservedBirthDays.xls at www.cengagebrain.com.

Explain a health and safety plan : Explain a health and safety plan (to prevent responder injury or illness) that includes at least three provisions to ensure personnel safety

Opportunity in serving the rapidly growing segment : You want to start a business and perceive an opportunity in serving the rapidly growing segment of the US population over 50.

Interested in issuing bonds with warrants : McGovern Enterprises is interested in issuing bonds with warrants attached. The bonds will have a 30-year maturity and annual interest payments.

Analyze improvements over the last two years to technology : Analyze the improvements over the last two years to your communication technology topic, and suggest an improvement based on its current usage.

Discussion participation scoring guide : According to Turban, et al, between October 2011 and February 2012, there were 86 known attacks in the United States, an increase of 87 percent from the prior.

How you might limit your liability exposure as an owner : For each business entity, analyze how you might limit your liability exposure as an owner

Security rights from within an operating system : How do you administrator basic user and group security rights from within an operating system? How do you configure password policies?

User Account

All Pages