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BRW Co has 10% redeemable loan notes in issue trading at $90. The loan notes are redeemable at a 10%premium in five years' time, or

BRW Co has 10% redeemable loan notes in issue trading at $90. The loan notes are redeemable at a 10%premium in five years' time, or convertible at that point into 20 ordinary shares. The current share price is$2.50 and is expected to grow at 10% per annum for the foreseeable future. BRW Co pays 30% corporation tax. 


What is the best estimate of the cost of these loan notes?

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To calculate the cost of the loan notes we need to consider the value of the two options that the holder has in five years time Option 1 Redemption If ... blur-text-image

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