The Tsetsekos Company was planning to finance an expansion. The principal executives of the company all agreed that an industrial company such as theirs should finance growth by means of common stock rather than by debt. However, they felt that the current $45 per share price of the company's common stock did not reflect its true worth, so they decided to sell a convertible security. They considered a convertible debenture but feared the burden of fixed interest charges if the common stock did not rise enough in price to make conversion attractive. They decided on an issue of convertible preferred stock, which would pay a dividend of $2.40 per share.
The conversion ratio will be 1.0; that is, each share of convertible preferred can be converted into a single share of common. Therefore, the convertible's par value (and also the issue price) will be equal to the conversion price, which in turn will be determined as a premium (i.e., the percentage by which the conversion price exceeds the stock price) over the current market price of the common stock. What will the conversion price be if it is set at a 10% premium? Round your answer to the nearest cent.
$ __________
At a 30% premium? Round your answer to the nearest cent.
$
_______
The Tsetsekos Company was planning to finance an expansion. The principal executives of the compa...
Convertible Premiums The Tsetsekos Company was planning to finance an expansion. The principal executives of the company all agreed that an industrial company such as theirs should finance growth by means of common stock rather than by debt. However, they felt that the current $35 per share price of the company's common stock did not reflect its true worth, so they decided to sell a convertible security. They considered a convertible debenture but feared the burden of fixed interest charges...
Check My Work eBook Problem Walk-Through Convertible Premiums The Tsetsekos Company was planning to finance an expansion. The principal executives of the company all agreed that an industrial company such as their should finance growth by means of common stock rather than by debt. However, they felt that the current $35 per share price of the company's common stock did not reflectits true worth, so they decided to convertible security. They considered a convertible debenture but feared the burden of...
Find the conversion value of a convertible preferred stock that carries a conversion ratio of 1.8, given that the market price of the underlying common stock is $32.86 a share. Would there be any conversion premium if the convertible preferred were selling at $73.82 a share? If so, how much in dollar and percentage terms)? Also, explain the concept of conversion parity, and then find the conversion party of this issue given that the preferred trades at 573.82 per share....
Determining values-Convertible bond Craig's Cake Company has an outstanding issue of 8-year convertible bonds with a $800 par value. These bonds are convertible into 60 shares of common stock. They have a 11 % annual coupon interest rate, whereas the interest rate on straight bonds of similar risk is 14% a. Calculate the straight bond value of this bond b. Calculate the conversion (or stock) value of the bond when the market price is $22 per share of common stock...
A certain 5% annual coupon rate convertible bond (maturing in 20 years) is convertible at the holder's option into 17 shares of common stock. The bond is currently trading at $790. The stock(which pays 56¢ a share in annual dividends) is currently priced in the market at $33.79 a share. QUESTIONS: HUGE THUMBS UP FOR CORRECT ANSWERS c. The conversion value of this issue is (blank) $ ? (Round to the nearest cent.) d.. The conversion premium in dollars is...
Determining values—Convertible bond Craig's Cake Company has an outstanding issue of 15-year convertible bonds with a $800 par value. These bonds are convertible into 75 shares of common stock. They have a 12% annual coupon interest rate, whereas the interest rate on straight bonds of similar risk is 17%. a. Calculate the straight bond value of this bond. b. Calculate the conversion (or stock) value of the bond when the market price is $23 per share of common stock. c....
Determining values-Convertible bond Eastern Clock Company has an outstanding issue of convertible bonds with a $2,000 par value. These bonds are convertible into 35 shares of common stock. They have a 9% annual coupon interest rate and a 25-year maturity. The interest rate on a straight bond of similar risk is currently 13%. a. Calculate the straight bond value of the bond. b. Calculate the conversion (or stock) value of the bond when the market price of the common stock...
Please show all supporting computations. Points will be deducted if you do not show your work. 1. Litke Corporation issued at a premium of $10,000 a $200,000 bond issue convertible into 4,000 shares of common stock (par value $20). On October 1, 2020 all of the bonds were converted to shares of common stock. At the time of the conversion, $4,000 of the premium has been amortized, the market value of the bonds is $220,000, and the stock is quoted...
Seven Eleven Stores is planning an expansion project that it desires to finance with newly issued preferred stock. The firm has an outstanding issue of preferred stock that pays a dividend of $4.25 per share, which is trading for $65 per share. The investment bankers have advised Seven Eleven that flotation costs will be 8% per share. What will be the cost of the newly issued preferred shares?
“BLACKFRIDAY” company is planning an expansion of its existing production capacity. The firm hired you as a consultant for the expansion project. Since you are a savvy project manager, you first decided to estimate the firm’s cost of capital based on the available data. Data: Tax Rate: 40% Bond: Coupon rate 12%, Maturity Years 15, Present value $1150 Preferred Stock: Dividend rate 10%, Par Value $100, Present Value $111 Common Stock: Market price $50, D0=$4.20, Dividend growth 5%, Beta 1.2,...