Wasabi Inc. and Tempura Corporation have both issued 5 million common stocks. In addition, Wasabi Inc. has issued $5 000 000 of 11% convertible bonds, par value $100, with conversion ratio of 40 common stocks in five years' time at maturity. If not converted, the bonds can be redeemed at maturity by the bondholders at $111. Tempura Corporation has in issue 800 000 warrants, each with an exercise price of $2.50 for one common stock in Tempura Corporation. The warrants can be exercised in five years' time. Calculate the value of each convertible bond and each warrant in five years' time, for the following situations: (i) The stock price of both companies in five years' time is $2 per share; (ii) The stock price of both companies in five years' time is $3 per share. (iii) For each of the situations in (i) and (ii), advise holders of the above securities whether to exercise their respective conversion and warrant.

Wasabi Inc. and Tempura Corporation have both issued 5 million common stocks. In addition, Wasabi Inc. has issued $5 000 000 of 11% convertible bonds, par value $100, with conversion ratio of 40 common stocks in five years' time at maturity. If not converted, the bonds can be redeemed at maturity by the bondholders at $111. Tempura Corporation has in issue 800 000 warrants, each with an exercise price of $2.50 for one common stock in Tempura Corporation. The warrants can be exercised in five years' time. Calculate the value of each convertible bond and each warrant in five years' time, for the following situations: (i) The stock price of both companies in five years' time is $2 per share; (ii) The stock price of both companies in five years' time is $3 per share. (iii) For each of the situations in (i) and (ii), advise holders of the above securities whether to exercise their respective conversion and warrant.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter20: Hybrid Financing: Preferred Stock, Warrants, And Convertibles

Section: Chapter Questions

Problem 1P: Neubert Enterprises recently issued $1,000 par value 15-year bonds with a 5% coupon paid annually...

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