Assume all bonds are annual coupon for problems A,B, and C. Please show work. Thank you.

1. Corning, Inc. is contemplating the issuance of $40 million of debt to fund a potential acquisition. If Corning desired to issue straight debt, it could issue a 10-year bond with an interest rate of 8%. However, if the firm chose to include the offering of 25 warrants attached to each bond, the coupon rate would 6.5%. The firms current share price is $10 per share and the warrants would be convertible into common shares at an exercise price of $12.50 per share in five years. Corning has 15 million common shares outstanding.

1. Following the issuance of the bonds with warrants, Corning anticipates it operations to grow at an estimated annual rate of 5% per year. Assuming the bonds will be issued at par of $1,000 each, what is the perceived value of each warrant?

B. Consistent with problem 1, what is the expected total value for the firm in 5 years?

C. Consistent with problem 1, assuming the warrants are not exercised, what is the estimated common share price in 5 years?