Warrants Srorm Software wants to issue $70 million ($700 x 100,000 bonds) in new capital to...
Warrants
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 12%. However, Storm's advisers have suggested a 20-year bond offering with warrants. According to the advisers, Storm could issue 8% annual coupon-bearing debt with 30 warrants per $700 face value bond. Storm has 10 million shares of stock outstanding at a current price of $20. The warrants can be exercised in 10 years (on December 31, 2025) at an exercise price of $25. 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 11.3% per year.
a.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. $_________
b.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. ________%
What premium is associated with the warrants? Round you answer to two decimals places. ___________%
Homework Answers
Add Answer to:
Warrants
Srorm Software wants to issue $70 million ($700 x 100,000 bonds)
in new capital to...
Warrants Gregg Company recently issued two types of bonds. The first issue consisted of 20-year straight...
Warrants Gregg Company recently issued two types of bonds. The first issue consisted of 20-year straight (no warrants attached) bonds with an 10% annual coupon. The second issue consisted of 20-year bonds with a 7% annual coupon with warrants attached. Both bonds were issued at par ($800). What is the value of the warrants that were attached to the second issue? Round your answer to the nearest cent.
Warrants Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of...
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) $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,...
Warrants Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of...
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,...
Quantitative Problem 3: A warrant is a long-term option from a company that gives the holder...
Quantitative Problem 3: A warrant is a long-term option from a company that gives the holder the right to buy a stated number of shares of the firm's stock at a specified price for a specified length of time. Generally, warrants are distributed with debt, and they are used to induce investors to buy long- term debt that carries a lower coupon rate than would otherwise be required. The exercise of warrants brings in additional funds to the firm. A...
Suppose your company needs to raise $41.6 million and you want to issue 20-year bonds for...
Suppose your company needs to raise $41.6 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 6.6 percent, and you're evaluating two issue alternatives: a 6.6 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 21 percent. a. How many of the coupon bonds would you need to issue to raise the $41.6 million? How many of the zeroes would you need to...
Suppose your company needs to raise $35.5 million and you want to issue 20-year bonds for...
Suppose your company needs to raise $35.5 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you’re evaluating two issue alternatives: a 8.0 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent. Requirement 1: (a) How many of the coupon bonds would you need to issue to raise the $35.5 million? (Do not round intermediate calculations. Enter the...
Suppose your company needs to raise $30 million and you want to issue 20-year bonds for...
Suppose your company needs to raise $30 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 7.5 percent, and you're evaluating two issue alternatives: a 7.5 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 35 percent Requirement 1: (a) How many of the coupon bonds would you need to issue to raise the $30 million? (Do not round intermediate calculations. Enter the...
Suppose your company needs to raise $45 million and you want to issue 30-year bonds for...
Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose with a par value amount of $1000. Assume the required return on your bond issue will be 6%, and you're evaluating two issue alternatives: a 6% annual coupon bond and a zero-coupon bond. Your company's tax rate is 35% a-1. How many of the coupon bonds would you need to issue to raise the $45 million? Number of coupon bonds a-2. How...
cdiate the ter-tax cost of overlapping nteest tax bracket. ompany, an American company, is contemplating offering a new $50 million bond is standing $50 million bond issue. The company wishes to...
cdiate the ter-tax cost of overlapping nteest tax bracket. ompany, an American company, is contemplating offering a new $50 million bond is standing $50 million bond issue. The company wishes to take advantage of the to replace an out decline in interest rates that has occurred since the initial bond issuance. are described in what follows. The company is in the 40% tax bracket. old bonds. The outstanding bonds have a $1,000 face value and a 9% coupon interest rate....
Suppose your company needs to raise $53 million and you want to issue 25-year bonds for...
Suppose your company needs to raise $53 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 4.6 percent, and you're evaluating two Issue alternatives. A semiannual coupon bond with a coupon rate of 4.6 percent and a zero coupon bond. Your company's tax rate is 24 percent. Both bonds will have a par value of $2,000. a-1. How many of the coupon bonds would you need to issue...
Warrants Gregg Company recently issued two types of bonds. The first issue consisted of 20-year straight (no warrants attached) bonds with an 10% annual coupon. The second issue consisted of 20-year bonds with a 7% annual coupon with warrants attached. Both bonds were issued at par ($800). What is the value of the warrants that were attached to the second issue? Round your answer to the nearest cent.
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) $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,...
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,...
Quantitative Problem 3: A warrant is a long-term option from a company that gives the holder the right to buy a stated number of shares of the firm's stock at a specified price for a specified length of time. Generally, warrants are distributed with debt, and they are used to induce investors to buy long- term debt that carries a lower coupon rate than would otherwise be required. The exercise of warrants brings in additional funds to the firm. A...
Suppose your company needs to raise $41.6 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 6.6 percent, and you're evaluating two issue alternatives: a 6.6 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 21 percent. a. How many of the coupon bonds would you need to issue to raise the $41.6 million? How many of the zeroes would you need to...
Suppose your company needs to raise $30 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 7.5 percent, and you're evaluating two issue alternatives: a 7.5 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 35 percent Requirement 1: (a) How many of the coupon bonds would you need to issue to raise the $30 million? (Do not round intermediate calculations. Enter the...
Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose with a par value amount of $1000. Assume the required return on your bond issue will be 6%, and you're evaluating two issue alternatives: a 6% annual coupon bond and a zero-coupon bond. Your company's tax rate is 35% a-1. How many of the coupon bonds would you need to issue to raise the $45 million? Number of coupon bonds a-2. How...
cdiate the ter-tax cost of overlapping nteest tax bracket. ompany, an American company, is contemplating offering a new $50 million bond is standing $50 million bond issue. The company wishes to take advantage of the to replace an out decline in interest rates that has occurred since the initial bond issuance. are described in what follows. The company is in the 40% tax bracket. old bonds. The outstanding bonds have a $1,000 face value and a 9% coupon interest rate....
Suppose your company needs to raise $53 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 4.6 percent, and you're evaluating two Issue alternatives. A semiannual coupon bond with a coupon rate of 4.6 percent and a zero coupon bond. Your company's tax rate is 24 percent. Both bonds will have a par value of $2,000. a-1. How many of the coupon bonds would you need to issue...
Most questions answered within 3 hours.
-
1a) According to the ideal gas law, _______________.
a. a gas has infinite volume at absolute...
asked 1 hour ago -
Oakdale Fashions, Inc. had $245,000 in 2018 taxable income.
Using the tax schedule in Table 2.3...
asked 1 hour ago -
The marketing class at CSUS had an average score of 150. An
educational analyst determined that...
asked 2 hours ago -
Justin Case has purchased a $250 000 home by putting 20 % down
and taking out...
asked 3 hours ago -
1. In a labor market, marginal cost for a firm is
____________.
a. recruiting cost
b....
asked 3 hours ago -
On January 1, 2019, ABC Company issued $60,000,000 of 20-year,
10.5% bonds when the market rate...
asked 4 hours ago -
39.4% of US homes continue to use a landline in addition to cell
phone service. 3...
asked 4 hours ago -
Starting with benzene, synthesize 1-phenyl-1-butyne.
Show intermediates and reagents.
asked 5 hours ago -
Create a 32-run crossed array design with six control factors
and two noise factors such that...
asked 6 hours ago -
A 500g sample of sand from source A has the following amounts
retained on each sieve....
asked 6 hours ago -
In
your own words, please explain the essay by John Keynes wrote "The
End of Laissez...
asked 6 hours ago -
How are the matrix and pixels related? Why are smaller
pixels better for diagnostic quality?
asked 6 hours ago