Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $28. 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 $ 0 (2) $25 $ 0 (3) $30 $ (4) $100 $ 2 72 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 tha each warrant will have a market value of $2.5 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. % 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.
Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $28. 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 $ 0 (2) $25 $ 0 (3) $30 $ (4) $100 $ 2 72 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 tha each warrant will have a market value of $2.5 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. % 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.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter20: Hybrid Financing: Preferred Stock, Warrants, And Convertibles
Section: Chapter Questions
Problem 3P
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Transcribed Image Text:Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $28.
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 $
0
(2) $25 $
0
(3) $30 $
(4) $100 $
2
72
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 $2.5 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.
%
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.
$
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