Case synopsis: Company SS prepares for the first public offering. The offering was made in consultation of Person RH, the underwriter of Firm RW, Person CG have decided a convertible bond that has a maturity of twenty years. Person CG met Person MS and Person TS, the owners of Company SS to present the analysis of the convertible bonds. After few days, Person TS and Person MS had many questions to Person CG related to the bond issue. Person TS questioned Person CG whether the rate of the convertible bond will have a lesser coupon rate when compared to the comparable bond with conversion feature. After a huge discussion and debate between the owners, Person CG goes to Person RH for help. Characters in the case: Person MS Person TS Person CG Firm RW Person RH Person X Adequate information: Person TS states that the convertible is a win-win form of financing The company have issued the debt at a lower cost which is below the market value If the company’s stock increases to the conversion value, then the company have issued the stock at a price above the present value Person MS does not agree with the statement of Person TS and he states that the convertible bonds are no-win form of financing Person MS also states that if the stock increases more than $25, then the company must sell the stock at the conversion price To determine: The ways that Person X can take to reconcile the arguments made by Person TS and Person MS.

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Chapter 24, Problem 4M

Summary Introduction

Case synopsis:

Company SS prepares for the first public offering. The offering was made in consultation of Person RH, the underwriter of Firm RW, Person CG have decided a convertible bond that has a maturity of twenty years. Person CG met Person MS and Person TS, the owners of Company SS to present the analysis of the convertible bonds.

After few days, Person TS and Person MS had many questions to Person CG related to the bond issue. Person TS questioned Person CG whether the rate of the convertible bond will have a lesser coupon rate when compared to the comparable bond with conversion feature. After a huge discussion and debate between the owners, Person CG goes to Person RH for help.

Characters in the case:

Person MS

Person TS

Person CG

Firm RW

Person RH

Person X

Adequate information:

Person TS states that the convertible is a win-win form of financing

The company have issued the debt at a lower cost which is below the market value

If the company’s stock increases to the conversion value, then the company have issued the stock at a price above the present value

Person MS does not agree with the statement of Person TS and he states that the convertible bonds are no-win form of financing

Person MS also states that if the stock increases more than $25, then the company must sell the stock at the conversion price

To determine: The ways that Person X can take to reconcile the arguments made by Person TS and Person MS.

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