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Srorm Software wants to issue $120 million ($1,200 x 100,000 bonds) in new capital to fund new opportunities. If Storm raised the $120 million of new capital in a straight-debt 20-year bond offering, Storm would have to offer an annual coupon rate of 11%. However, Storm's advisers have suggested a 20-year bond offering with warrants. According to the advisers, Storm could issue 9% annual coupon-bearing debt with 24 warrants per $1,200 face value bond. Storm has 10 million shares of stock outstanding at a current price of $25. The warrants can be exercised in 10 years (on December 31, 2025) at an exercise price of $30. 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 10.4% per year.If investors pay $1,200 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.
Suppose the spot rates for 1 and 2 years are s1=6.3% and s2=6.9% with annual compounding. Recall that in this course interest rates are always quoted on an annual basis unless otherwise specified. What is the discount rate d(0,2)?
Marco Chip, INC. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 16 years and a yield to maturity of 13.03 %, compounded semi- annually. What is the current price of the bond?
Warren's Diner needed a new location. This establishment spent $65,000 to refurbish an old shop and create the current facility. The firm borrowed 75 percent of the refurbishment cost at 8 percent interest for 11 years. What is the amount of each mon..
Evaluate the alternative capital investments. Justify your answers to the following questions with full explanations. You will need to calculate the net present value, internal rate of return and payback period for each alternative
The debt consists of 20-year, 8 percent, $1000 bonds, presently selling at $701.25. Flotation costs on new bonds would raise the effective before tax interest cost to 0.5 percent above the yield to maturity on existing debt. At least half of the net ..
Growth stocks tend to:
Kay Kinder has borrowed $500,000 at a nominal annual rate with monthly compounding of 6.50% to start a new company. The first payment on the loan will be at the end of year 1. In what year will the loan balance go to zero?
If corporate tax rates increase, then all corporate WACCs will also increase. If market interest rates increase, then all corporate WACCs will decrease. If a company's overall exposure to systematic risk increases, then the company's WACC will decrea..
Assume that futures on 50 bushels of wheat have an initial margin requirement of $12 per contract and a maintenance margin requirement of $7 per contract. Consider also a buyer and seller of 100 contracts for wheat futures initiated in period 0 and s..
prepare a term paper on do dividends grow at the same rate as earnings and is the gordon model fact or fiction?
Genetic Insights Co. purchases an asset for $18,810. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, r..
Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at $10 a share and adding it to your portfolio. Alpha has an expected return of 13...
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