Part $A(9$ marks$){?}_{(})$

SLP Company recently issued two types of bonds. The first issue consisted of $20$ year straight $($no warrants attached$)$ bonds with an $8\%$ annual coupon. The second issue consisted of $20$ year bonds with a $6\%$ annual coupon with warrants attached. Both bonds were issued at par $($$$1,000).$ What is the value of the warrants? marks$)$

Part $B(16$ marks$){?}_{(})$

Soutar Computers Inc. needs to raise $$35$ million to begin producing a new micro$-$computer.

Soutar's straight, nonconvertible debentures currently yield $12\%.$Its stock sells for $$38\mathrm{.}00$ per share, the last dividend was $$2\mathrm{.}46,$ and the expected growth rate is a constant $8\%$ Investment bankers have tentatively proposed that Soutar raise the $$35$ million by issuing convertible debentures. These convertibles would have a $$1,000$ par value, carry an annual coupon rate of $10\%,$ have a $20$ year maturity, and be convertible into $20$ shares of stock. Assuming that the bonds will be converted at year $6,$ when they become callable:

Required:

a$.)$ What is the floor value of the convertible debentures?

$(13$ marks$)$

b$.)$ What will be the approximated expected return on the convertible when it is issued?

$(3$ marks$)$