Coupon Rates and Valuation
Not what you're looking for?
The ABC Corporation is setting its terms on a new issue with warrants. The bonds have a 30-year maturity and semiannual coupon. Each bond will have 25 warrants attached which give the holder the right to purchase one share of Random stock per warrant. ABC's investment banker estimates that each warrant has a value of $15.50. A similar straight-debt issue would require a 10.0 percent coupon. What coupon rate should be set on the bonds so that the package would sell for $1,000?
Coupon Rate ___________
2. ABC is considering purchasing a smaller chain, XYZ software. ABC's financial analysts project that the merger will result in incremental net cash flows of $3 million in Year 1, $5 million in Year 2, $7 million in Year 3, and $10 million in Year 4. The company expects to start with 30%supernormal growth, and 5% normal growth at the end of the fourth year. Assume all cash flows occur at the end of the year. XYZ's post merger beta is estimated to be 1.5, the risk free rate is 6 percent, and the market returns are11 percent. What is the value of XYZ Software to ABC software?
Value: $ __________
Purchase this Solution
Solution Summary
The solution explains how to determine the coupon rate so that the package is sold at par and also valuation of a firm.
Purchase this Solution
Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce