Question
Warrants Srorm Software wants to issue $80 million ($800 x 100,000 bonds) in new capital to fund new opportunities. If Storm raised the $80 million
Warrants Srorm Software wants to issue $80 million ($800 x 100,000 bonds) in new capital to fund new opportunities. If Storm raised the $80 million of new capital in a straight-debt 20-year bond offering, Storm would have to offer an annual coupon rate of 10%. However, Storm's advisers have suggested a 20-year bond offering with warrants. According to the advisers, Storm could issue 7% annual coupon-bearing debt with 30 warrants per $800 face value bond. Storm has 10 million shares of stock outstanding at a current price of $30. The warrants can be exercised in 10 years (on December 31, 2025) at an exercise price of $35. Each warrant entitles its holder to buy one share of Storm Software stock. After issuing the bonds with warrants, Storm's operations and investments are expected to grow at a constant rate of 9.5% per year.
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