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A. Calculate the exercise value of the firm's warrants if the common sells at each of the following prices: (1) $20, (2) $25, (3) $30, (4) $100. (Hint: A warrant's exercise value is the difference between the stock price and the purchase price specified by the warrant if the warrant were to be exercised.) (1) $20 $ 0 (2) 25 $ 0 (3) 30 $ 5 (4) 100 $ 75
B. Assume the firm's stock now sells for $20 per share. The company wants to sell some 20-year, $1,000 par value bonds with interest paid annually. Each bond will have attached 75 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm's straight bonds yield 11%. Assume that each warrant will have a market value of $3.25 when the stock sells at $20. What coupon interest rate must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.) Round your answer to two decimal places. %
C. What dollar coupon must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.) Round your answer to the nearest dollar. $
In 1965, Warren Buffett acquired control of a New England textile business called Berkshire Hathaway for about $10 a share. Today the stock sells for around $90,000 a share and Mr. Buffett is the wealthiest person in the United States. How will the c..
A company with a return on equity of 15.7% and a plowback ratio of 70% would expect a constant-growth rate of:
Why do bubbles and bursts occur in financial markets? In discussing this issue, you need to focus on the rationality of investors, the availability of information to different categories of investors, and the use of historical data in financial d..
You want to invest in a corporate bond with a face value of $1,000, a coupon rate of 8% per year, and 10 years to maturity. The current annual yield to maturity of this bond is 6%. What is the current value of the bond, assuming interest is paid once..
Calculate the difference between daily and annual compounding, given the following information: (a) PV: $23,000, (b) NPER: 30, and (c) RATE: 5%.
S. Company has the following capital structure: 45% debt, 15% preferred stock and 40% common stock. Assume the risk-free rate is 8%, the beta stock is 1.3 and the market risk premium (Rm - Rf) is 12%, Determine the weighted average costs of capital (..
When a firm has risky debt, its equity can be viewed as an option on the total value of the firm with an exercise price equal to the face value of the debt.
You have the opportunity to purchase an investment that will generate annual cash flows of $9,923 per year for the next 23 years. If your required rate of return on this investment is 9.05%, how much is the investment worth?
Happy Enterprises currently has an operating cycle of 62 days. The firm is analyzing some operational changes, which are expected to increase the accounts receivable period by 2 days and decrease the inventory period by 5 days. The accounts payable t..
Discuss zero-base budgeting and how it is used by an organization. How could this method be beneficial in budgeting for a new business start-up?
What is the price of Maxwell's stock today and what is the expected payout ratio if Martha Stewart's uses the residual distribution model to determine next year's distribution and makes all distributions in the form of dividends?
Which of the following would increase a firm's cash flow from investing activities?
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