The Random Corporation is setting terms on a new issue of bonds with warrants. The bonds have a 30-year maturity, and annual coupon. Each bond will have 60 warrants attached, which give the holder the right to purchase one share of Random stock per warrant at an exercise price of $32. The warrants have a life of 12 years. Randoms investment banker estimates that each warrant has a current value of $4.73. A similar straight debt issue would require a yield of 10.014%. Randoms stock currently sells at $24 per share, and is expected to grow at a constant growth rate of 4% forever. The firm is in the 40% marginal tax rate.

a) What coupon rate should be set on the bonds so that the package would sell for $1000?

b) Compute the yield to the investors from the package, if the package is sold at par.

c) Compute the cost to the firm from the package if the package is sold at par.