Deck Problem Walk Through O'Brien Computers Inc needs to be $35 million to begin producing a new microcomputer. We convertible debentures currently yield 14. its stocks for share the last dividend was $2.35; and the expected growth rate is a constant $104, Investment bankers have tentatively proposed that on raise the 35 million by issuing convertible debentures. These convertibles would have a $1,200 par value, carry an annual coupon rate of Whave a 20 year maturity, and be convertinta 22 shares of stock. The bonds would be noncaltable for 5 years after which they would be able at a price of $1.250 this call orice would decline by 4 per year in war and each year thereafter Management has called convertibles in the past and presumably will call them again in the future), once they were eligible for catoon the conversion value was about 25% above their par value (not their call price) Choose the graph, representing the expectations set forth in the problem A tConversion way Expected market to 1600 M Straight- Bond value 400 tranvesion value Expected market price H00 God M Straight Bond value 200 Expected pected at price Conventional +1000 M Straight-Bond value 1400 14.10.04 The correct graph is Select b. Suppose the previously outlined projects work out on schedule for 2 years, but then O'Brien begins to experience edremely strong competition from Japanese result. O Brienspected growth rate drops from 10 to zero. Assume that the dividend at the time of the drop is $2.9. The company credit strength is not imod and its value of T, is also unchanged. What would happen (1) to the stock price and (2) to the convertible bond price? Be as predse as you can. Do not rund intermediate calculations. Round your answers to the nearest whole number Percentage decline in stock price is Percentage decline of in the value of the convertible PU Deck Problem Walk Through O'Brien Computers Inc needs to be $35 million to begin producing a new microcomputer. We convertible debentures currently yield 14. its stocks for share the last dividend was $2.35; and the expected growth rate is a constant $104, Investment bankers have tentatively proposed that on raise the 35 million by issuing convertible debentures. These convertibles would have a $1,200 par value, carry an annual coupon rate of Whave a 20 year maturity, and be convertinta 22 shares of stock. The bonds would be noncaltable for 5 years after which they would be able at a price of $1.250 this call orice would decline by 4 per year in war and each year thereafter Management has called convertibles in the past and presumably will call them again in the future), once they were eligible for catoon the conversion value was about 25% above their par value (not their call price) Choose the graph, representing the expectations set forth in the problem A tConversion way Expected market to 1600 M Straight- Bond value 400 tranvesion value Expected market price H00 God M Straight Bond value 200 Expected pected at price Conventional +1000 M Straight-Bond value 1400 14.10.04 The correct graph is Select b. Suppose the previously outlined projects work out on schedule for 2 years, but then O'Brien begins to experience edremely strong competition from Japanese result. O Brienspected growth rate drops from 10 to zero. Assume that the dividend at the time of the drop is $2.9. The company credit strength is not imod and its value of T, is also unchanged. What would happen (1) to the stock price and (2) to the convertible bond price? Be as predse as you can. Do not rund intermediate calculations. Round your answers to the nearest whole number Percentage decline in stock price is Percentage decline of in the value of the convertible PU
