【正文】 1000 Solve for payment = 100 Therefore, the required coupon rate is $100/$1,000 = 10%. 21 11 Copyright 169。 20xx Harcourt, Inc. All rights reserved. ?At issue, the package was actually worth VPackage = $850 + 50($5) = $1,100, which is $100 more than the selling price. If after issue the warrants immediately sell for $5 each, what would this imply about the value of the package? (More...) 21 12 Copyright 169。 20xx Harcourt, Inc. All rights reserved. ?The firm could have set lower interest payments whose PV would be smaller by $100 per bond, or it could have offered fewer warrants and/or set a higher exercise price. ?Under the original assumptions, current stockholders would be losing value to the bond/warrant purchasers. 21 13 Copyright 169。 20xx Harcourt, Inc. All rights reserved. ?Generally, a warrant will sell in the open market at a premium above its value if exercised (it can’t sell for less). ?Therefore, warrants tend not to be exercised until just before expiration. Assume that the warrants expire 10 years after issue. When would you expect them to be exercised? (More...) 21 14 Copyright 169。 20xx Harcourt, Inc. All rights reserved. ?In a steppedup exercise price, the exercise price increases in steps over the warrant’s life. Because the value of the warrant falls when the exercise price is increased, stepup provisions encourage inthemoney warrant holders to exercise just prior to the stepup. ?Since no dividends are earned on the warrant , holders will tend to exercise voluntarily if a stock’s payout ratio rises enough. 21 15 Copyright 169。 20xx Harcourt, Inc. All rights reserved. ?When exercised, each warrant will bring in the exercise price, $25. ?This is equity capital and holders will receive one share of mon stock per warrant. ?The exercise price is typically set some 20% to 30% above the current stock price when the warrants are issued. Will the warrants bring in additional capital when exercised? 21 16 Copyright 169。 20xx Harcourt, Inc. All rights reserved. No. As we shall see, the warrants have a cost which must be added to the coupon interest cost. Because warrants lower the cost of the acpanying debt issue, should all debt be issued with warrants? 21 17 Copyright 169。 20xx Harcourt, Inc. All rights reserved. ?The pany will exchange stock worth $ for one warrant plus $25. The opportunity cost to the pany is $ $ = $ per warrant. ?Bond has 50 warrants, so the opportunity cost per bond = 50($) = $. What is the expected return to the bond withwarrant holders (and cost to the issuer) if the warrants are expected to be exercised in 5 years when P = $? (More...) 21 18 Copyright 169。 20xx Harcourt, Inc. All rights reserved. ?Here are the cash flows on a time line: 0 1 4 5 6 19 20 +1,000 100 100 100 100 100 100 1,000 1,100 Input the cash flows into a calculator to find IRR = %. This is the pretax cost of the bond and warrant package. (More...) 21 19 Copyright 169。 20xx Harcourt, Inc. All rights reserved. ?The cost of the bond wi