Provide correct answer You are asked to evaluate a five-year, convertible debt offering beingconsidered by management. This offering, effective January 1, 2013, is for $40million. It would be issued at 2% below prevailing interest rates at the time ofissuance and is due on December 31, 2017 (five years after issuance). Theconversion feature of the debt would allow the debt holders to convert each$1,000 of debt into 10 shares of common stock. The issuance costs areexpected to total $200,000, which will primarily comprise attorney andaccounting fees. The reporting entity follows IFRS. Assume the prevailinginterest rate for the non-convertible bonds is 6% at the beginning of the year.How much interest expense is to be recognized and recorded for the year2014?

Step 1: Determine the interest rate: 6% prevailing rate minus 2% = 4%.Step 2: Calculate the annual…

Answered: You are asked to evaluate a five-year,…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 6P

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Please solve correctly with everything . also calculate diluted earnings per share.
Today is January 12, 2017. The shares of XYZ Inc. are currently selling for $120 per share. The shares have an estimated volatility of 25%. XYZ Inc. is also expected to pay a dividend of $1.50 with an ex-dividend date of January 25, 2017. The risk-free rate is 6.17 percent per year with continuous compounding. Assume that one call option gives the holder the right to purchase one share. b. This European call option has a market price of $3.00. Is it correctly priced? If not, how can an investor use the put-call parity to take advantage of this arbitrage opportunity?
In December 2022, Pronghorn Corp. decided to issue 100,000 convertible bonds, maturing in December 2032. The bonds have a face value of $1,000 and promise an annual coupon payment of 6.00 percent. The conversion ratio of these bonds is 25.86, and it is known that Pronghorn Corp's common shares were trading at $35 in December 2022. These bonds are rated A-, and straight bonds from similar companies with similar maturity yield 9 percent. The current market price of these bonds is $1,066. Calculate the conversion price, conversion value, SBV, floor value, and conversion premium for these bonds. (Round answers to 2 decimal places, e.g. 125.25 or 25.25%.) Conversion price Conversion value $ SBV Floor value Conversion premium $ %
The Severn Company plans to raise a net amount of$270 million to finance new equipment in early 2019. Two alternatives are being considered:Common stock may be sold to net $60 per share, or bonds yielding 12% may be issued.The balance sheet and income statement of the Severn Company prior to financing are asfollows: Assuming that EBIT equals 10% of sales, calculate earnings per share (EPS) under the debtfinancing and the stock financing alternatives at each possible sales level. Then calculateexpected EPS and σEPS under both debt and stock financing alternatives. Also calculate thedebt-to-capital ratio and the times-interest-earned (TIE) ratio at the expected sales levelunder each alternative. The old debt will remain outstanding. Which financing method doyou recommend? (Hint: Notes payable should be included in both the numerator and thedenominator of the debt-to-capital ratio.)
On June 1st, 2020, Coca Cola (KO) issued bonds for one billion dollars. The bonds have a par value of $1,000, coupon rate of 2.75% payable semiannually, and 40 years maturity (maturity date: 6/1/2060). What is the average annual return for an investor who purchased these bonds at launch (6/1/20) for $970.30 and sold them three years later (6/1/23) for $681.83? HINT: Don’t divide HPR/3. Consider the effects of compounding. Find the annual interest rate that would make the initial investment of $970.30 become $681.83 after three years. -9.90% per year. -9.50% per year. -0.95% per year. +9.90% per year.
An investor purchased a Convertible Note of Company XYZ for $500,000 with a $5 million valuation cap. The Convertible Note is protected against dilution from the creation of a future employee stock option pool. Company XYZ later raises $5 million in a Series A round of financing at a $20 million post-money valuation. The Series A financing terms include a provision that the company must create a stock option pool that will equal 5% of the company’s fully diluted shares after giving effect to the sale of the Series A Preferred. Company XYZ currently has 4 million shares of common stock outstanding. a) What will be the capitalization table of the Company XYZ after the Series A financing round?
XYZ is Public Limited Company. The company board of director was decided to offer 1,000 no. of bonds of par value of $10 each in 2018; carrying 15 percent coupon rate and 3 year maturity period, bond would mature in 2021. The discount rate in first year (2019) was 8 percent. The rate was the same in 2020. After that market rate of return had increased to 10 % in 2021. The market (par) value of bonds will be 9 per bond (1,000 bonds). What will be present value of bond?
3) Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 1.5. It also has $10 million face value of bonds that matures 26 July 2042 and 7 % coupon with annual payments and are priced to yield 14%. Use actual/actual convention method. Settlement date is 8 April 2021. If the company issues up to $ 2,500,000 of new bonds, the bonds will be priced at par and have a yield of 14 %; if it issues bonds beyond $2,500,000, the expected yield on the entire issuance will be 15 %. Company has known that market value of its shares is traded at the value of $10 a share and the new shares can be sold at the same price. The current risk-free rate is 3 % and the expected market return is 10 %. Company’s tax rate is 30 %. What is the WACC if Company raises $7.5 million of new capital (both equity and debt) while maintaining the same debt-to-equity ratio?
Swift Bicycles plans to issue convertible bonds to finance its future growth. Each convertible bond has a face value equal to $1,000 and can be converted into 25 shares of common stock. What is the minimum stock price that would make it beneficial for bondholders to convert their bonds?
What is required return on Green's equity after the restructuring?
David Palmer identified the following bonds for investment: BondA: A$1millionpar,10%annualcouponbond,whichwillmature on July 1, 2025. Bond B: A $1 million par, 14% semi-annual coupon bond (interest will be paid on January 1 and July 1 each year), which will mature on July 1, 2031. Bond C: A $1 million par, 10% quarterly coupon bond (interest will be paid on January 1, April 1, July 1, and October 1 each year), which will mature on July 1, 2026. The three bonds were issued on July 1, 2011. (a) If Bond B is issued at face value and both Bond B and Bond A are having the same yield to maturity (EAR), calculate the market price of Bond A on July 1, 2011. [N ote: Full mark would only be given to correct answer of which the values of those variables not provided in the question directly are derived.] (b） David purchased the Bond C on January 1, 2014 when Bond C was priced to have a yield to maturity (EAR) of 10.3812891%. David subsequently sold Bond C on January 1, 2016…
Macrostrategy (MS) is planning to issue convertible bonds to finance its CEO Michael Taylor’s gambling plan that includes multiple poker games with an initial capital of $1 billion. Company plans to issue bonds at par value of $1000 each with an option to convert bonds into stocks at maturity to make issuance attractive for investors. Current share price of MS is $50 and bonds will be issued with a 25% conversion premium and 4 years term. Bonds will pay semi-annual coupon with an annual coupon rate of 1%. MS has stock options available in the market and on the closing of 11/30/2021, option prices are listed below; 11/30/2021 Market Data (Share Price: $50) Option Type Exercise Price Last Trade Maturity Call $55 $3.25 05/31/2022 Call $58 $3.75 08/15/2022 Call $60 $4.10 11/15/2022 Annual risk free rate is 0.8% Calculate implied volatilities of the options listed above and use the average implied volatility in your option valuation. Calculate the option price with the 25%…

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