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28 Sep 2019
Charles River Company has just sold a bond issue with 40 warrantsattached. The bonds have a 20-year maturity, an annual coupon rateof 12.0 percent, and they sold at their $1,000 par value. Thecurrent yield on similar straight bonds is 15.0 percent.
(a) What is the implied value of each warrant?
(b) Each warrant can be exchanged for one share at an exerciseprice of $25. Suppose, current stock price is $18 and is expectedto appreciate at an annual rate of 6 percent a year. If investorsexercise all warrants at the end of nine years, what will be thefirmâs cost of capital for this issue of bonds with warrants?
Charles River Company has just sold a bond issue with 40 warrantsattached. The bonds have a 20-year maturity, an annual coupon rateof 12.0 percent, and they sold at their $1,000 par value. Thecurrent yield on similar straight bonds is 15.0 percent.
(a) What is the implied value of each warrant?
(b) Each warrant can be exchanged for one share at an exerciseprice of $25. Suppose, current stock price is $18 and is expectedto appreciate at an annual rate of 6 percent a year. If investorsexercise all warrants at the end of nine years, what will be thefirmâs cost of capital for this issue of bonds with warrants?
(a) What is the implied value of each warrant?
(b) Each warrant can be exchanged for one share at an exerciseprice of $25. Suppose, current stock price is $18 and is expectedto appreciate at an annual rate of 6 percent a year. If investorsexercise all warrants at the end of nine years, what will be thefirmâs cost of capital for this issue of bonds with warrants?
Beverley SmithLv2
29 Sep 2019
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