What is the component cost of these bonds with warrants

Assignment Help Financial Management
Reference no: EM131859464

Srorm Software wants to issue $70 million ($700 x 100,000 bonds) in new capital to fund new opportunities. If Storm raised the $70 million of new capital in a straight-debt 20-year bond offering, Storm would have to offer an annual coupon rate of 10%. However, Storm's advisers have suggested a 20-year bond offering with warrants. According to the advisers, Storm could issue 6% annual coupon-bearing debt with 24 warrants per $700 face value bond. Storm has 10 million shares of stock outstanding at a current price of $25. The warrants can be exercised in 10 years (on December 31, 2025) at an exercise price of $30. Each warrant entitles its holder to buy one share of Storm Software stock. After issuing the bonds with warrants, Storm's operations and investments are expected to grow at a constant rate of 9.6% per year.

If investors pay $700 for each bond, what is the value of each warrant attached to the bond issue? Round your answer to the nearest cent. $   

What is the component cost of these bonds with warrants? Round your answer to two decimal places. %

What premium is associated with the warrants? Round your answer to two decimal places. %

Reference no: EM131859464

Questions Cloud

Protect individuals from fraudulent securities offerings : A law intended to protect individuals from fraudulent securities offerings:
Considering setting up firm to produce gadgets : You are considering setting up a firm to produce gadgets. The demand for gadgets can be high, medium, or low with equal probability
Employer stock from the company stock bonus plan : Carrie retired last week and received a lump­sum distribution of her employer's stock from the company's stock bonus plan.
What is the value of the warrants : What is the value of the warrants that were attached to the second issue?
What is the component cost of these bonds with warrants : If investors pay $700 for each bond, what is the value of each warrant attached to the bond issue? What is the component cost of these bonds with warrants?
Coupon bond that pays interest annually : A coupon bond that pays interest annually is selling at par value of $1,000, matures in five years and has a coupon rate of 9%. The yield to maturity on bond is
The duration of bond is function of the bond : The duration of a bond is a function of the bond's. Ceteris paribus, the duration of a bond is negatively correlated with the bond's.
Why is property tax considered regressive tax : Why is property tax considered a regressive tax? What measures does government take to make it less regressive?
What does the IRR rule indicate about this investment : What is the IRR of this investment opportunity? What does the IRR rule indicate about this investment?

Reviews

Write a Review

Financial Management Questions & Answers

  The balance in the estate would remain unchanged

The children received the interest only from the estate, thus the balance in the estate would remain unchanged.

  The risk free rate on treasury bills

The risk free rate on Treasury bills is 4% and expected market risk premium is 10%. What is minimum after-tax rate of return that Action must earn on investment

  Important to perform post-ipo risk and growth analysis

Why is it important to perform a post-IPO risk and growth analysis?

  What discount margin in basis points

What discount margin, in basis points, is reflected in the FRN’s price?

  Efficient in matching savers and borrowers

When financial markets and institutions are not efficient in matching savers and borrowers,

  Foundation scholarship and reduced tuition

An international graduate student will receive a $28,000 foundation scholarship and reduced tuition.

  Firm needs to plow back its earnings to fuel growth

No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth.

  What is the value of their stock when the required rate

Value a Constant Growth Stock Financial analysts forecast Wal-Mart Stores (WMT) growth for the future to be 11.00 percent. Their recent dividend was $1.33. What is the value of their stock when the required rate of return is 14.00 percent?

  Calculating present values

You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $510,000 per year. Thus, in one year, you receive $1.51 million. In two years you get $2.02 million, and so on. If the appropriate intere..

  Preferred stock may exist because

Preferred stock may exist because:

  What is the maximum amount of tax deduction

What is the maximum amount of tax deduction that could be taken by XYZ corporation for contributions made to employee accounts in the year 2017?

  Interest rate on the loan with the compensating balance

How low would the interest rate on the loan with the compensating balance have to be for you to choose it?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd