Car Corp has$200M in convertible debt with a 5% coupon.The coupons are paid annually.Similar non-convertible debt has

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Car Corp has$200M in convertible debt with a 5% coupon.The coupons are paid annually.Similar non-convertible debt has a 6% yield to maturity.The convertible debt was issued at par and their current price is $900 per bond.The tax rate is 25%.The firm's stock sells for $5 per share and there are 60M shares outstanding.The levered equity beta is 1.6, the risk-free rate is 3% and the market risk premium is 6%.

a) Find the weighted average cost of capital. Please show your work.

Time 1 2 3 4

NOPAT 200 300 200 400

Net Investmentin Operating Capital 100 100 50 100

b)The firm is expected to grow at 3% after year 4.Find the value of the operations.Please show your work.

c)Car Corp was offered $4000 from an interested buyer.Should they accept that offer? Explain.

Posted Date: May 19, 2024 12:01 PM

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Car Corp has$200M in convertible debt with a 5% coupon.The coupons are paid annually.Similar non-convertible debt has

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