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Coffee Masters is thinking about issuing convertible dentures. The investment banking firm that they were referred to thinks that they can issue convertible debentures with the following characteristics:
-9% coupon
-20-year maturity
-$1,000 par value
-Conversion price of $50/share
The executives of Coffee Masters are only willing to issue these debentures IF the after-tax cost of capital is less than 8%. If the after-tax cost of capital exceeds 8%, they are going to move onto 'Plan B'. Plan B consists of issuing non-convertible debt. Given the following information on the company, what is the minimum price per debenture that they are able to receive to keep the after-tax cost of the debenture at 8%?
-Coffee Masters current common stock price = $43/share
-They anticipate calling the convertible issue five years from now when the common stock price is likely to grow to $60/share
-They are in a 40% tax bracket
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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