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Mr. Duncan has decided to eliminate preferred stock as one of the alternatives and focus on the others. EduSofts investment banker estimates that EduSoft could
Mr. Duncan has decided to eliminate preferred stock as one of the alternatives and focus on the others. EduSofts investment banker estimates that EduSoft could issue a bond-with-warrants package consisting of a 20-year bond and 27 warrants. Each warrant would have a strike price of $25 and 10 years until expiration. It is estimated that each warrant, when detached and traded separately, would have a value of $5. The coupon on a similar bond but without warrants would be 10%. If the corporate tax rate is 25%, what is the after-tax cost of the bond with warrants
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