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Srorm Software wants to issue $110 million ($1,100 x 100,000 bonds) in new capital to fund new opportunities. If Storm raised the $110 million of new capital in a straight-debt 20-year bond offering, Storm would have to offer an annual coupon rate of 12%. However, Storm's advisers have suggested a 20-year bond offering with warrants. According to the advisers, Storm could issue 8% annual coupon-bearing debt with 26 warrants per $1,100 face value bond. Storm has 10 million shares of stock outstanding at a current price of $20. The warrants can be exercised in 10 years (on December 31, 2025) at an exercise price of $25. Each warrant entitles its holder to buy one share of Storm Software stock. After issuing the bonds with warrants, Storm's operations and investments are expected to grow at a constant rate of 11.5% per year. If investors pay $1,100 for each bond, what is the value of each warrant attached to the bond issue? Round your answer to the nearest cent. $ What is the component cost of these bonds with warrants? Round your answer to two decimal places. % What premium is associated with the warrants? Round your answer to two decimal places.
A stock is currently selling for $78 per share. A call option with an exercise price of $81 sells for $3.90 and expires in three months. If the risk-free rate of interest is 2.7 percent per year, compounded continuously, what is the price of a put op..
Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 12 percent and standard deviation of 25 percent. The average return and standard deviation of Idol Staff are 15 percent and 35 percent..
A general contractor is buying construction equipment for grading with a purchase price of $140,000. The salvage price after 5 years is $16,000. The expected monthly benefit is $3,400. The dealership offered him to buy additional equipment with a tot..
A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9 percent over the past five years, respectively. Based on these five years, what is the probability that an investor in this stock will lose more than 17.06 percent ..
Clumsy Corp. is planning to issue new 30-year bonds. Initially, the plan was to make the bonds non-callable. If the bonds were made callable after 10 years at a 10% call premium, how would this affect their required rate of return?
Company A today expects to earn $6.25 per share for each of the future operating periods (beginning at time 1) if the firm makes no new investments and returns the earnings as dividends to the shareholders. What is the price per share of this company..
The U.S. inflation rate is 2 percent, and the British inflation rate is 3 percent. - What is the change in the nominal exchange rate?
1. Discuss each part of the formula 2. how changes in exchange rates effect values.
For the quantitative portions of this class, such as present value, IRR, decision tree analysis, evaluation of options, foreign exchange transactions: What method of teaching, or what types of problem solving, help you to learn the best? What type of..
A common stock has just paid a dividend of $1.64/share. The dividend is expected to grow by 16% for the coming 25 years. After that, the growth rate in dividend is expected to be 5% per year in perpituity. The RRR on the stock is 10%. What is the val..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.73 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,090,000 in annual sale..
Yet, they sometimes close the facility later because the cost advantage dissipates. Why do you think the relative cost advantage of these countries is reduced over time?
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