The common stock of Southern Airlines currently sells for $34, and its 10-years-to-maturity 9% convertible debentures (issued at par, or $1,000) sell for $850. Each debenture can be converted into 28 shares of common stock at any time before maturity. The YTM for straight debt is 13%. (Same numbers as the previous problem). What is the current convertibility value?

Mikkleson Mining stock is selling for $42 per share, has an expected dividend in the coming year of $1.80, and has an expected constant growth rate of 6.5%. The company is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 10.00%. Company will call the bond when the conversion value exceeds $1,150. What is the estimated floor price of the convertible at the end of Year 3?   When is the bond expected to be called? When is the cost of capital for this convertible bond? 

Answer rating: 100% (QA)

1 Current Convertibility Value Convertibility Value Convertible Bond Price x Conversion Ratio Conver... View the full answer