Questions from Corporate Finance

Q: A bond with 20 detachable warrants has just been offered for sale

A bond with 20 detachable warrants has just been offered for sale at $1,000. The bond matures in 20 years and has an annual coupon of $18. Each warrant gives the owner the right to purchase two shares...

Q: We are examining a new project. We expect to sell 7

We are examining a new project. We expect to sell 7,400 units per year at $59 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $59 × 7,400 = $436,600...

Q: In Problem 14, suppose you think it is likely that expected

In Problem 14, suppose you think it is likely that expected sales will be revised upward to 11,400 units if the first year is a success and revised downward to 3,500 units if the first year is not a s...

Q: In Problem 15, suppose the scale of the project can be

In Problem 15, suppose the scale of the project can be doubled in one year in the sense that twice as many units can be produced and sold. Naturally, expansion would be desirable only if the project i...

Q: Suppose a share of stock sells for $54. The risk

Suppose a share of stock sells for $54. The risk-free rate is 5 percent, and the stock price in one year will be either $60 or $70. a. What is the value of a call option with an exercise price of $60...

Q: Which of the following two sets of relationships, at time of

Which of the following two sets of relationships, at time of issuance for convertible bonds, is more typical? Why?

Q: Campbell, Inc., has a $1,000 face value

Campbell, Inc., has a $1,000 face value convertible bond issue that is currently selling in the market for $960. Each bond is exchangeable at any time for 17 shares of the company’s stock. The convert...

Q: The Tribiani Co. just issued a dividend of $2.

The Tribiani Co. just issued a dividend of $2.90 per share on its common stock. The company is expected to maintain a constant 4.5 percent growth rate in its dividends indefinitely. If the stock sells...

Q: Liberty Products, Inc., is considering a new product launch.

Liberty Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $4.9 million for the next eight years. The company uses a discount rate of 11 percen...

Q: You have been hired to value a new 25-year callable

You have been hired to value a new 25-year callable, convertible bond. The bond has a coupon rate of 2.1 percent, payable annually. The conversion price is $54, and the stock currently sells for $26.4...