1. If $30 million of $1,000 par value bonds are issued at 7.5% interest with a conversion...

Question:

1. If $30 million of $1,000 bonds are issued at 7.5% interest with a conversion ratio of 40: a. How much will the annual interest payments be? b. How many new shares will potentially be created?
2. If Justin raised the $30 million at a current stock price of $19.50, approximately how many new shares would have to be issued? (Round to the nearest whole number)
3. If he held off until the stock traded at S35, approximately how many new shares would have to be issued? (Round to the nearest whole number) Is this course of action realistic?
4. By issuing convertibles at 7.5% instead of straight debt at 11%, how much in interest payments will be saved each year?
5. If the convertibles are issued and the price of the stock goes to $35, what is likely to happen to the price of the bonds? Does the convertible bondholder need to convert immediately to take advantage of the increase in the stock price? (Refer to the text if necessary.)
6. If in the future, the wants to force the bondholders to convert. How may it accomplish this? (Refer to the text if necessary.)
7. Carol mentioned that there was potential dilution associated with the convertibles. Assume SSI's condensed and income statement, before convertibles were issued, were as follows:

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...