ABC Company is planning to issue 20,000 bonds with warrants attached. The bonds will make annual interest payments of 6.8% and will have a 20-year maturity. There will be 75 warrants attached to each bond, with each warrant giving the right to purchase one share of stock at a price of $12. A similar straight-debt issue would require a 10% coupon rate. Total assets before issuance equal $120 million, with $50 million of liabilities.

1. What is the value of the straight bond issue when the bond and warrants are initially issued?

2. What is the value of the warrants when the bond and warrants are initially issued?

3. What is the impact on ABCs balance sheet immediately after the bonds are issued, assuming all proceeds are used to finance new plant and equipment?

4. What is the impact on ABCs balance sheet after the warrants are exercised assuming a par value of $1 per share of common stock?