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Pricing Convertibles [LO6] You have been hired to value a new 20-year callable, convertible bond. The bond has a 6.3 percent coupon, payable annually. The conversion price is $105, and the stock currently sells for $47.10. The stock price is expected to grow at 10 percent per year. The bond is callable at $1,200, but, based on prior experience, it won’t be called unless the conversion value is $1,300. The required return on this bond is 9 percent. What value would you assign to this bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bond value $
Aubey Automation Inc., maker of the loom, has offered to lease the loom to Western for $70,000 upon delivery and installation (at t = 0) plus four additional annual lease payments of $70,000 to be made at the end of Years 1 to 4. Should the loom be l..
Jet Corporation expects an EBIT of $26,500 every year forever. The company currently has no debt, and its cost of equity is 15 percent. The corporate tax rate is 35 percent. Suppose the company can borrow at 10 percent. What will the value of the fir..
Using semiannual compounding, what is the yield to call for these bonds?
Ansari had the following transactions: Sales of $ 1,000,000. Ansari estimated that 1% of the sales will be uncollectible. How will the accounting equation be impacted by these transactions?
How much value will this new equipment create for the firm? At what discount rate will this project break even?
At the beginning of the year, you bought a $1000 par value corporate bond with an annual coupon rate of 6 percent and a maturity date of 10 years. When you bought the bond, it had an expected yield to maturity of 8 percent. Today the bond sells for 1..
How will this change in accounts receivable policy affect Dakota’s net income, total asset turnover, equity multiplier, ROA, and ROE?
Skyumeal Inc. is considering a project that has the following cash flow data. What is the project's discounted payback if the required rate of return for the project is 10 percent? Should the company accept or reject the project if the required disco..
You are considering opening a new plant. The plant will cost $100 million upfront and will take one year to build. After that, it is expected to produce profits of $30 million at the end of every year of production. The cash flows are expected to las..
You establish a straddle on Firm G using call and put options with a strike price of $87. The call premium is $9.5 and the put premium is $13. What are the breakeven prices?
A perpetuity -
Between two publicly-traded companies, one offers a standard, industry-competitive dividend pay-out.
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