Preissle Company wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $45 per share, and each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $60. The warrants expire in 5 years. The firm's straight bonds yield 9%. Each warrant is expected to have a market value of $1.50. The company's stock is expected to grow at 7% indefinitely. What is the bond-with-warrants' cost of capital?

The common stock of Southern Airlines currently sells for $34, and its 10-years-to-maturity 9% convertible debentures (issued at par, or $1,000) sell for $850. Each debenture can be converted into 28 shares of common stock at any time before maturity. The YTM for straight debt is 13%. What is the conversion value of the bond?