Assume the firm's stock now sells for $30 per share. The company wants to raise $20 million by issuing 20-year, annual interest, $1,000 par value bonds. Each bond will have 40 warrants attached, each exercisable into 1 share of stock at an exercise price of $36. The firms straight bonds yield 8%. Each warrant is expected to have a market value of $0.75 when the stock sells at $30. The company wants to establish a coupon interest rate and dollar coupon to ensure that the bonds will clear the market.

a. Calculate the value of the debt portion of the bonds with warrants. Stock price $30 Bonds-life and par value 20 Par value $1,000 # of warrants per bond 40 Exercise price $36 Warrant market value @ P=$30) $0.75 Yield on straight bonds 8% b. Calculate the dollar coupon amount per bond with warrants.

c. Calculate the coupon interest rate that should be set on the bonds with warrants.

d. Identify 3 advantages to the company of issuing a bond with warrants instead of straight bonds.

e. Identify 3 advantages to the investor of buying a bond with warrants instead of straight bonds.