Invest in projects with positive net present value

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Your firm needs to raise $45 million to invest in projects with a positive Net Present Value. You have been asked to recommend one of the following: 1. Common stock which could be sold for $9. 2. Fixed rate bond with a face value of $1000 and a coupon of 7.5% and a warrant attached that allows the owner to buy 90 shares $12 per share. 3. Convertible bond with a coupon of 7.5% which is convertible into 90 shares. You know that additional financing will be needed next year to support positive NPV projects. The industry average debt to total assets ratio is 45%. You believe your optimal capital structure is between 40 and 46% debt. Following are items from the latest financials: Balance Sheet Long-term Debt $40,000,000 Common Stock ($1 par) 55,000,000 Retained earnings 5,000,000 Total $100,000,000 1. Develop the firm’s Balance Sheet for each alternative. Assume that debt has been converted and warrants exercised. 2. What are the advantages and disadvantages of each of these alternatives? 3. Which would you recommend and why?

Reference no: EM132014338

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