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Warrants Srorm Software wants to issue $70 million ($700 x 100,000 bonds) in new capital to...

Warrants

Srorm Software wants to issue $70 million ($700 x 100,000 bonds) in new capital to fund new opportunities. If Storm raised the $70 million of new capital in a straight-debt 20-year bond offering, Storm would have to offer an annual coupon rate of 12%. However, Storm's advisers have suggested a 20-year bond offering with warrants. According to the advisers, Storm could issue 8% annual coupon-bearing debt with 30 warrants per $700 face value bond. Storm has 10 million shares of stock outstanding at a current price of $20. The warrants can be exercised in 10 years (on December 31, 2025) at an exercise price of $25. Each warrant entitles its holder to buy one share of Storm Software stock. After issuing the bonds with warrants, Storm's operations and investments are expected to grow at a constant rate of 11.3% per year.

a.If investors pay $700 for each bond, what is the value of each warrant attached to the bond issue? Round your answer to the nearest cent. $_________

b.What is the component cost of these bonds with warrants? Round your answer to two decimal places. % What premium is associated with the warrants? Round your answer to two decimal places. ________%

What premium is associated with the warrants? Round you answer to two decimals places. ___________%

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Answer #1

bond 700 Valu each warrant oonds cioxent prmce Stock X aYYan Ca - $600 value each womantcosb Value 23:33-20 X100 23-33 3.33 29 7.

answered by: ANURANJAN SARSAM
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