Maple Aircraft has issued a 4 % convertible subordinated debenture due 2014. The conversion price is $47.00

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Maple Aircraft has issued a 4 ¾% convertible subordinated debenture due 2014. The conversion price is $47.00 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50.
Assume that the value of the bond in the absence of a conversion feature is about 65% of face value.
a. What is the conversion ratio of the debenture?
b. If the conversion ratio were 50, what would be the conversion price?
c. What is the conversion value?
d. At what stock price is the conversion value equal to the bond value?
e. Can the market price be less than the conversion value?
f. How much is the convertible holder paying for the option to buy one share of common stock?
g. By how much does the common have to rise by 2014 to justify conversion?
h. When should Maple call the debenture?

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Principles of Corporate Finance

ISBN: 978-0077404895

10th Edition

Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen

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