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Warrants Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $23. a. Calculate the exercise value of a warrant at each of the following common stock prices: (1) $20, (2) $25, (3) $30, (4) $100. (Hint: A warrant's exercise value is the difference between the stock price and the purchase price specified by the warrant if the warrant were to be exercised.) If your answer is zero, enter "0". Round your answers to the nearest dollar. (1) $20 $ 3 (2) $25 $ 2 (3) $30 $ 7 (4) $100 $ 77 b. Assume the firm's stock now sells for $20 per share. The company wants to sell some 20-year, $1,000 par value bonds with interest paid annually. Each bond will have attached 75 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm's straight bonds yield 11%. Assume that each warrant will have a market value of $3.5 when the stock sells at $20. What coupon interest rate must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.) Do not round intermediate calculations. Round your answer to two decimal places. 9.10 What dollar coupon must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.) Do not round intermediate calculations. Round your answer to the nearest dollar. $ 99.92 X Convertible Premiums The Tsetsekos Company was planning to finance an expansion. The principal executives of the company all agreed that an industrial company such as theirs should finance growth by means of common stock rather than by debt. However, they felt that the current $48 per share price of the company's common stock did not reflect its true worth, so they decided to sell a convertible security. They considered a convertible debenture but feared the burden of fixed interest charges if the common stock did not rise enough in price to make conversion attractive. They decided on an issue of convertible preferred stock, which would pay a dividend of $2.50 per share. a. The conversion ratio will be 1.0; that is, each share of convertible preferred can be converted into a single share of common. Therefore, the convertible's par value and also the issue price) will be equal to the conversion price, which in turn will be determined as a premium (i.e., the percentage by which the conversion price exceeds the stock price) over the current market price of the common stock. What will the conversion price be if it is set at a 14% premium? Round your answer to the nearest cent. $ 46.20 At a 30% premium? Round your answer to the nearest cent. b. Should the preferred stock include a call provision? I. No, the company does not want to force conversion under any circumstance. II. Yes, to be able to force conversion if the market rises above the call price. III. Yes, to be able to force conversion if the market falls below the call price. Convertible Bond Analysis Fifteen years ago, Roop Industries sold $400 million of convertible bonds. The bonds had a 40-year maturity, a 5.75% coupon rate, and paid interest annually. They were sold at their $1,000 par value. The conversion price was set at $63.50, and the common stock price was $56 per share. The bonds were subordinated debentures and were given an A rating; straight nonconvertible debentures of the same quality yielded about 8.85% at the time Roop's bonds were issued. a. Calculate the premium on the bonds that is, the percentage excess of the conversion price over the stock price at the time of issue. Do not round intermediate calculations. Round your answer to two decimal places. % b. What is Roop's annual before-tax interest savings on the convertible issue versus a straight-debt issue? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $25,500,000 should be entered as 25.5. Round your answer to two decimal places. $ million per year C. At the time the bonds were issued, what was the value per bond of the conversion feature? Do not round intermediate calculations. Round your answer to the nearest cent. $ per bond d. Suppose the price of Roop's common stock fell from $56 on the day the bonds were issued to $33.00 now, 15 years after the issue date (also assume the stock price never exceeded $63.50). Assume interest rates remained constant. What is the current price of the straight-bond portion of the convertible bond? Do not round intermediate calculations. Round your answer to the nearest cent. Enter all amounts as a positive number. $ What is the current value if a bondholder converts a bond? Do not round intermediate calculations. Round your answer to the nearest cent. S per share Do you think it is likely that the bonds will be converted? No e. The bonds originally sold for $1,000. If interest rates on A-rated bonds had remained constant at 8.85% and if the stock price had fallen to $33.00, then what do you think would have happened to the price of the convertible bonds? (Assume no change in the standard deviation of stock returns.) Round your answers to the nearest cent. Enter all amounts as a positive number. The value of straight bond would have increased from $ at the time of issue to $ fifteen years later. f. Now suppose that the price of Roop's common stock had fallen from $56 on the day the bonds were issued to $33.00 at present, 15 years after the issue. Suppose also that the interest rate on similar straight debt had fallen from 8.85% to 5.75%. Under these conditions, what is the current price of the straight-bond portion of the convertible bond? Do not round intermediate calculations. Round your answer to the nearest dollar. Enter all amounts as a positive number. $ per bond What is the current value if a bondholder converts a bond? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share What do you think would have happened to the price of the bonds? The price of the bonds will be slightly more than $1,000. Warrants Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $23. a. Calculate the exercise value of a warrant at each of the following common stock prices: (1) $20, (2) $25, (3) $30, (4) $100. (Hint: A warrant's exercise value is the difference between the stock price and the purchase price specified by the warrant if the warrant were to be exercised.) If your answer is zero, enter "0". Round your answers to the nearest dollar. (1) $20 $ 3 (2) $25 $ 2 (3) $30 $ 7 (4) $100 $ 77 b. Assume the firm's stock now sells for $20 per share. The company wants to sell some 20-year, $1,000 par value bonds with interest paid annually. Each bond will have attached 75 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm's straight bonds yield 11%. Assume that each warrant will have a market value of $3.5 when the stock sells at $20. What coupon interest rate must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.) Do not round intermediate calculations. Round your answer to two decimal places. 9.10 What dollar coupon must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.) Do not round intermediate calculations. Round your answer to the nearest dollar. $ 99.92 X Convertible Premiums The Tsetsekos Company was planning to finance an expansion. The principal executives of the company all agreed that an industrial company such as theirs should finance growth by means of common stock rather than by debt. However, they felt that the current $48 per share price of the company's common stock did not reflect its true worth, so they decided to sell a convertible security. They considered a convertible debenture but feared the burden of fixed interest charges if the common stock did not rise enough in price to make conversion attractive. They decided on an issue of convertible preferred stock, which would pay a dividend of $2.50 per share. a. The conversion ratio will be 1.0; that is, each share of convertible preferred can be converted into a single share of common. Therefore, the convertible's par value and also the issue price) will be equal to the conversion price, which in turn will be determined as a premium (i.e., the percentage by which the conversion price exceeds the stock price) over the current market price of the common stock. What will the conversion price be if it is set at a 14% premium? Round your answer to the nearest cent. $ 46.20 At a 30% premium? Round your answer to the nearest cent. b. Should the preferred stock include a call provision? I. No, the company does not want to force conversion under any circumstance. II. Yes, to be able to force conversion if the market rises above the call price. III. Yes, to be able to force conversion if the market falls below the call price. Convertible Bond Analysis Fifteen years ago, Roop Industries sold $400 million of convertible bonds. The bonds had a 40-year maturity, a 5.75% coupon rate, and paid interest annually. They were sold at their $1,000 par value. The conversion price was set at $63.50, and the common stock price was $56 per share. The bonds were subordinated debentures and were given an A rating; straight nonconvertible debentures of the same quality yielded about 8.85% at the time Roop's bonds were issued. a. Calculate the premium on the bonds that is, the percentage excess of the conversion price over the stock price at the time of issue. Do not round intermediate calculations. Round your answer to two decimal places. % b. What is Roop's annual before-tax interest savings on the convertible issue versus a straight-debt issue? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $25,500,000 should be entered as 25.5. Round your answer to two decimal places. $ million per year C. At the time the bonds were issued, what was the value per bond of the conversion feature? Do not round intermediate calculations. Round your answer to the nearest cent. $ per bond d. Suppose the price of Roop's common stock fell from $56 on the day the bonds were issued to $33.00 now, 15 years after the issue date (also assume the stock price never exceeded $63.50). Assume interest rates remained constant. What is the current price of the straight-bond portion of the convertible bond? Do not round intermediate calculations. Round your answer to the nearest cent. Enter all amounts as a positive number. $ What is the current value if a bondholder converts a bond? Do not round intermediate calculations. Round your answer to the nearest cent. S per share Do you think it is likely that the bonds will be converted? No e. The bonds originally sold for $1,000. If interest rates on A-rated bonds had remained constant at 8.85% and if the stock price had fallen to $33.00, then what do you think would have happened to the price of the convertible bonds? (Assume no change in the standard deviation of stock returns.) Round your answers to the nearest cent. Enter all amounts as a positive number. The value of straight bond would have increased from $ at the time of issue to $ fifteen years later. f. Now suppose that the price of Roop's common stock had fallen from $56 on the day the bonds were issued to $33.00 at present, 15 years after the issue. Suppose also that the interest rate on similar straight debt had fallen from 8.85% to 5.75%. Under these conditions, what is the current price of the straight-bond portion of the convertible bond? Do not round intermediate calculations. Round your answer to the nearest dollar. Enter all amounts as a positive number. $ per bond What is the current value if a bondholder converts a bond? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share What do you think would have happened to the price of the bonds? The price of the bonds will be slightly more than $1,000