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Johnny Be Good Racing recently issued two types of bonds. The first issue consisted of 10-year straight debt with a 10 percent annual coupon. The second issue consisted of 10-year bonds with a 9 percent annual coupon and attached warrants. Both issues sold at their $1,000 par values. The company's stock is currently selling for $24.50 per share.

a. Calculate the implied value of the warrants attached to each bond.

William Vitamin Corporation purchases from a supplier at terms of 1/10, net 30.

a. Calculate the nominal cost of the trade credit.

See attached file for full problem description.

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Excel file attached with all calculations. The expert calculates the implied value of the warrants attached to each bond.

Solution provided by:
Ashish Sharma, MBA (IP)
Education
  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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