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capitalization rate adjustments

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A firm has the following capitalization:
Debt $125,000,000
Equity $260,000,000
Total Capitalization $385,000,000

(1) Adjust the capitalization to an issuance of $50,000,000 in bonds with warrants exercisable at $32 per share. Each bond carries 2.375 warrants and the bonds have a face value of $1,000. Assume the warrants are exercised.

(2) Adjust the capitalization to an issuance of $50,000,000 convertible bonds with a conversion ratio of 2.375. The bonds have a face value of $1,000. Assume the bonds are converted.

Please show calculations.

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Solution Summary

The solution emphasizes capitalization rate adjustments.

$2.19