The Findlay Company has debentures outstanding (par value $1,000) that are convertible into common stock at a price of $50 per share The convertible bonds have a coupon interest rate of 9 percent and mature in 18 years The convertible bonds are callable at 103 percent of par value The company has a...

a Conversion value 10005045 900 b Straight bond value 90 ...

The Findlay Company has debentures outstanding (par value = $1,000) that are convertible into common stock at

Question:

The Findlay Company has outstanding (par value = $1,000) that are convertible into at a price of $50 per share. The convertible bonds have a interest rate of 9 percent and mature in 18 years. The convertible bonds are callable at 103 percent of par value. The company has a marginal tax rate of 40 percent.
a. Calculate the conversion value of the bonds if Findlay’s is selling for $45 per share.
b. Calculate the straight-bond value, assuming that straight debt of equivalent risk and is yielding 12 percent.
c. Determine the conversion premium if the market value of the bonds is $935.
d. Determine the conversion value of the bonds if the company’s price increases to $65 per share.
e. Given the information in part d, what is a realistic estimate of the market price of the convertible bond issue?

Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who... Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...