Chapter 20, Mini Case - D
As an alternative to the bond with warrants, Mr. Duncan is co...
Business, 05.05.2020 09:39, tyricqreed91
Chapter 20, Mini Case - D
As an alternative to the bond with warrants, Mr. Duncan is considering convertible bonds. The firm’s investment bankers estimate that EduSoft could sell a 20-year, 8.5% coupon (paid annually), callable convertible bond for its $1,000 par value, whereas a straight-debt issue would require a 10% coupon (paid annually). The convertibles would be call protected for 5 years, the call price would be $1,100, and the company would probably call the bonds as soon as possible after their conversion value exceeds $1,200. Note, though, that the call must occur on an issue-date anniversary. EduSoft’s current stock price is $20, the dividend is expected to grow at a constant 8% rate. The convertible could be converted into 40 shares of EduSoft stock at owner’s option.
1) What conversion price is built into the bond?
2) What is the convertibles’ straight-debt value? What is the implied value of the convertibility feature?
3) What is the formula for the bond’s expected conversion value in any year? What is its conversion value at Year 0? At Year 10?
4) What is meant by the floor value of a convertible? What is the convertible’s expected floor value at Year 0? At Year 10?
5) Assume that EduSoft intends to force conversion by calling the bond as soon as possible after its conversion value exceeds 20% above its par value, or 1.2($1,000) = $1,200. When is the issue expected to be called? (Hint: Recall that the call must be made on an anniversary date of the issue)
6) What is the expected cost of capital for the convertible to EduSoft? Does this cost appear to be consistent with the riskiness of the issue?
7) What is the after-tax cost of the convertible bond?
Please show ALL work and or formulas!
Answers: 3
Other questions on the subject: Business
Business, 21.06.2019 19:20, ellycleland16
Which of the following best explains why large companies have an advantage over smaller companies? a. economies of scale make it possible to offer lower prices. b. the production possibilities frontier is wider for a larger company. c. decreasing marginal utility enables more efficient production. d. increasing the scale of production leads to a reduction in inputs.2b2t
Answers: 1
Business, 21.06.2019 21:30, tyreque
Part i a company's cereal is not selling well. create a 10-15-question survey that measures customers' preferences for the company's cereal product. then, answer the following questions: how many scale items will you put in the survey? justify your answer. will you use multiple-choice questions? why or why not? how many scale points will you use in the survey? justify your answer. what data type will be used in the survey? justify your answer. part ii as a second part of this assignment, create a set of survey questions, assuming that you sell cars. you are attempting to measure how customers perceive the quality of the cars that you sell. create three survey questions with simple category scales. justify why you selected those questions and scales. create three survey questions with multiple-choice, single-response scales. justify why you selected those questions and scales. create three survey questions with multiple-choice, multiple-response scales. justify why you selected those questions and scales. create three survey questions with likert scale summated ratings. justify why you selected those questions and scales.
Answers: 1
Business, 22.06.2019 02:30, milkshakegrande101
The cost of capital: introduction the cost of capital: introduction companies issue bonds, preferred stock, and common equity to aise capital to invest in capital budgeting projects. capital is』necessary factor of production and like any other factor, it has a cost. this cost is equal to the select the applicable security. the rates of return that investors require on bonds, preferred stocks, and common equity represent the costs of those securities to the firm. companies estimate the required returns on their securities, calculate a weighted average of the costs of their different types of capital, and use this average cost for capital budgeting purposes. required return on rate: when calculating om operations when the firm's primary financial objective is to select shareholder value. to do this, companies invest in projects that earnselect their cost of capital. so, the cost of capital is often referred to as the -select -select and accruals, which a se spontaneously we hted average cost of capital wa c our concern is with capital that must be provided by select- 쑤 interest-bearing debt preferred stock and common equity. capital budgeting projects are undertaken, are not included as part of total invested capital because they do not come directly from investors. which of the following would be included in the caculation of total invested capital? choose the response that is most correct a. notes payable b. taxes payable c retained earnings d. responses a and c would be included in the calculation of total invested capital. e. none of the above would be included in the cakulation of total invested capital.
Answers: 2
Do you know the correct answer?
Questions in other subjects:
Biology, 08.12.2019 17:31
History, 08.12.2019 17:31
Mathematics, 08.12.2019 17:31
English, 08.12.2019 17:31
Mathematics, 08.12.2019 17:31
Social Studies, 08.12.2019 17:31
