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Defense Systems Inc. has convertible bonds outstanding that are callable at $1,045. The bonds are convertible into 23 shares of common stock. The stock is currently selling for $60.20 per share. a. If the firm announces it is going to call the bonds at $1,045, what action are bondholders likely to take? Bondholders will most likely convert their bonds to shares of common stock. Bondholders will most likely allow their bonds to be called. b. Assume that instead of the call feature, the firm has the right to drop the conversion ratio from 23 down to 21.00 after 5 years and down to 19.00 after 10 years. If the bonds have been outstanding for four years and 11.00 months, what will the price of the bonds be if the stock price is $63.90? Assume the bonds carry no conversion premium. (Do not round intermediate calculations and round your answer to 2 decimal places.) Bond price c. Further assume that you anticipate that the common stock price will be up to $67.00 in two months. Considering the conversion feature, should you convert now or continue to hold the bond for at least two more months? You should convert now. You should hold on for two more months. Myers Drugs Inc. has 2.4 million shares of stock outstanding. Earnings after taxes are $9 million. Myers also has warrants outstanding that allow the holder to buy 100,000 shares of stock at $25 per share. The stock is currently selling for $50 per share. a. Compute basic earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.) Basic earnings per share b. Compute diluted earnings per share considering the possible impact of the warrants. Assume the cash proceeds are used to repuchase shares. (Do not round intermediate calculations and round your answer to 2 decimal places.) Use the following formula: Earnings after taxes Shares outstanding + Assumed net increase in shares from the warrants Diluted earnings per share Defense Systems Inc. has convertible bonds outstanding that are callable at $1,045. The bonds are convertible into 23 shares of common stock. The stock is currently selling for $60.20 per share. a. If the firm announces it is going to call the bonds at $1,045, what action are bondholders likely to take? Bondholders will most likely convert their bonds to shares of common stock. Bondholders will most likely allow their bonds to be called. b. Assume that instead of the call feature, the firm has the right to drop the conversion ratio from 23 down to 21.00 after 5 years and down to 19.00 after 10 years. If the bonds have been outstanding for four years and 11.00 months, what will the price of the bonds be if the stock price is $63.90? Assume the bonds carry no conversion premium. (Do not round intermediate calculations and round your answer to 2 decimal places.) Bond price c. Further assume that you anticipate that the common stock price will be up to $67.00 in two months. Considering the conversion feature, should you convert now or continue to hold the bond for at least two more months? You should convert now. You should hold on for two more months. Myers Drugs Inc. has 2.4 million shares of stock outstanding. Earnings after taxes are $9 million. Myers also has warrants outstanding that allow the holder to buy 100,000 shares of stock at $25 per share. The stock is currently selling for $50 per share. a. Compute basic earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.) Basic earnings per share b. Compute diluted earnings per share considering the possible impact of the warrants. Assume the cash proceeds are used to repuchase shares. (Do not round intermediate calculations and round your answer to 2 decimal places.) Use the following formula: Earnings after taxes Shares outstanding + Assumed net increase in shares from the warrants Diluted earnings per share
