### Calculate the exercise value of firms warrants

Assignment Help Financial Management
##### Reference no: EM13907282

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. \$

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