Part C asks to fill in the green cells based on the terms.

Part D asks to explain the outcome of the part labeled "Outcome (Pick one of the 3 choices listed to the right.)"

Assume that the XYZ corporation had the following 3 securities in its capital structure. (1) A senior bank loan with 5 years to maturity and $20,000,000 in face value, and a zero coupon rate. (2) A zero coupon convertible bond with 5 years to maturity and an aggregate issue amount of $10,000,000 in face value (10,000 bonds, each with a face value of $1,000). Each bond is convertible into 50 shares of stock. (3) 2,000,000 shares of common stock. Assume that the bank loan is senior to the convertible bond and that in the event of a bankruptcy Chapter 7 applies. a. If all of the convertible bonds were converted into equity, what would be the total number of new shares issued? b. What is the conversion price embedded in the convertible bond. c. Fill in the green shaded cells in the table below. The 3 Possible Values at Maturity in 5 Years 25% 50% 25% Expected Value at Maturity 28,000,000 $ 58,000,000 $ 88,000,000 $ Probability: Asset Value Bank Loan Value Convertible Bond Value of the Original Equity (2,000,000 shares) Share Price at Maturity if Fully Converted Outcome Choices: 1 Bankruptcy Outcome (Pick one of the 3 choices listed to the right.) Actual Share Price 2 Solvency, but No Conversion 3 Convert Bonds d. Briefly explain why you chose the outcome you listed in cells D15, E15, and F15. e. Assume that the risk free rate of interest - 2%, and risk premium to use to value the assets is 6%. What is the present value of the assets, using annual compounding? f. Assume that the risk free rate of interest - 2%, and risk premium to use to value the convertible bond is 3%. What is the present value of the convertible bond, using annual compounding? g. Assume that the risk free rate of interest - 2%, and risk premium to use to value the bank loan is 0.50%. What is the present value of the bank loan, using annual compounding? h. What is the current value of the existing 2,000,000 shares of common stock? Assume that the XYZ corporation had the following 3 securities in its capital structure. (1) A senior bank loan with 5 years to maturity and $20,000,000 in face value, and a zero coupon rate. (2) A zero coupon convertible bond with 5 years to maturity and an aggregate issue amount of $10,000,000 in face value (10,000 bonds, each with a face value of $1,000). Each bond is convertible into 50 shares of stock. (3) 2,000,000 shares of common stock. Assume that the bank loan is senior to the convertible bond and that in the event of a bankruptcy Chapter 7 applies. a. If all of the convertible bonds were converted into equity, what would be the total number of new shares issued? b. What is the conversion price embedded in the convertible bond. c. Fill in the green shaded cells in the table below. The 3 Possible Values at Maturity in 5 Years 25% 50% 25% Expected Value at Maturity 28,000,000 $ 58,000,000 $ 88,000,000 $ Probability: Asset Value Bank Loan Value Convertible Bond Value of the Original Equity (2,000,000 shares) Share Price at Maturity if Fully Converted Outcome Choices: 1 Bankruptcy Outcome (Pick one of the 3 choices listed to the right.) Actual Share Price 2 Solvency, but No Conversion 3 Convert Bonds d. Briefly explain why you chose the outcome you listed in cells D15, E15, and F15. e. Assume that the risk free rate of interest - 2%, and risk premium to use to value the assets is 6%. What is the present value of the assets, using annual compounding? f. Assume that the risk free rate of interest - 2%, and risk premium to use to value the convertible bond is 3%. What is the present value of the convertible bond, using annual compounding? g. Assume that the risk free rate of interest - 2%, and risk premium to use to value the bank loan is 0.50%. What is the present value of the bank loan, using annual compounding? h. What is the current value of the existing 2,000,000 shares of common stock