Question

Warrants Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $25. a. Calculate the exercise value of a warrant at each of the following common stock prices: (1) $20 (2) $25. (3) $30 (4) 5100 (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 "o". Round your answers to the nearest dollar. (1) $20 $ (2) $25 $ (3) $30 $ (4) $100 $ 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 100 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm's straight bonds yield 9%. Assume that each warrant will have a market value of $3.5 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.

Answer 1

O Stock Price Exercise Price = Purchase Price specified - 1 by Warrents = 20 - 25 = -$5 eie Exercise Price = $25 - $ 25 3 Exercise Price = $ 30 - $ 25 = $5 4 Exercise Price = $100 - $ 25 = $75