Question: The Maritime Engineering Corp. sold 1,500 convertible bonds two years ago at their $1,000 par value. The 20-year bonds carried a coupon rate of 8%

The Maritime Engineering Corp. sold 1,500 convertible bonds two years ago at their $1,000 par value. The 20-year bonds carried a coupon rate of 8% and were convertible into stock at $20 per share. At the time, the firm’s stock was selling for $15, and similar bonds without a conversion feature were yielding 10%. Maritime’s stock is now selling for $25. The firm does not pay dividends.

a. Calculate the return on investment from buying the bond when it was issued, exercising the conversion today, and immediately selling the stock received.

b. What would the return on an investment in Maritime’s stock have been?

c. What was the conversion premium of the bond at the time it was issued?

d. Last year Maritime had net income (EAT) of $4.5 million and 3 million shares outstanding. The company’s marginal tax rate was 34%. Compute Maritime’s basic and diluted EPS.

Step by Step Solution

★★★★★

3.40 Rating (169 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Shares exchanged 100020 50 shares Proceeds of selling shares 50 x 25 1250 Two years interest 1000 ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

171-B-A-S-E (408).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

ArtFun Inc. is investigating the possibility of providing an instructional program in ceramics. The office manager and the recreation program manager have collected the following information: The...

A bond with a coupon rate of 8 percent sells at a yield to maturity of 9 percent. If the bond matures in 17 years, what is the Macaulay duration of the bond? What is the modified duration?

A $1,000 bond has a coupon rate of 8 percent and matures after ten years. a) What is the current price of the bond if the comparable rate of interest is 8 percent? b) What is the current price of the...

20. The Maritime Engineering Corp. sold 1,500 convertible bonds two years ago at their $1,000 par value. The 20-year bonds carried a coupon rate of 8% and were convertible into stock at $20 per...

22. The Maritime Engineering Corp sold 1,500 convertible bonds two years ago at their $1,000 par value. The 20-year bonds carried a coupon rate of 8% and were convertible into stock at $20 per share....

The Maritime Engineering Corp sold 1,500 convertible bonds two years ago at their $1,000 par value. The 20-year bonds carried a coupon rate of 7% and were convertible into stock at $20 per share. At...

Please see the attached. These questions are pretty repetitive. I don't need solutions... I just need answers. Thank you. 1. What is the value of a bond that has a par value of $1,000, a coupon rate...

Please provide original work. The questions and answers are provided in the word document and the case study is provided in pdf format. Please use your own words to answer questions 1 through 7...

Sheet 2 (Unit 2) is where I have started my work. Ch. 4 Problem 2a-c Calculating Future Values : Compute the future value of $3,200 compounded annually for a. 10 years at 6 percent b. 10 years at 8...

Question:- KPMG Taseer Hadi & Co. as the Auditors of the Company for the year 2019, subject to Shareholders' approval at the next AGM to be held on April 09, 2019. Holding Company Through its wholly...

Determine the energy destruction associated with each of the processes of the Brayton cycle described in Problem 998, assuming a source temperature of 1260 K and a sink temperature of 300 K. Also,...

Burkle Corporation's March 31 bank reconcillation shows deposits in transit of $700. The general ledger Cash in Bank account shows total cash receipts during April of $41,000. The April bank...

IAS 1 6 allows both upward and downward revaluation of fixed assets. whereas U . S . CAAP only allows spward revaluation Question 8 Which of the following items should be included in the cost of...

63. A board is hung from two springs, as shown in the figure above, with the board in equilibrium. Each spring has a spring constant of 10,000 N/m. How far will each spring stretch when a person of...

Br ,, at TsO NaSH DMSO NaOH Br- DMSO NaCN Br KOCH, La CH,CN

The Government of Yokuku considers applying one of the following policies: a tax or a standard, in order to reduce pollution level from P to Po. The government economist drew the following graph,...

Correy Corp. and its divisions (each is an operating segment) are engaged solely in manufacturing operations. The following data (consistent with prior years data) pertain to the operations conducted...

What is the principal benefit of nonqualified plans over other forms of savings?

When would a mutual fund be more attractive than an annuity?

What does capital needs analysis provide?

Assume you want to purchase 100 shares at $40 per share at a time when the initial margin requirement is 70%. Because 70% of the transaction must be finance with equity, the 30% balance can be...

For the following two samples, what is the value of sp2, the pooled estimate of the common variance?Include 1 decimal place in your answer. Sample 1 Sample Size 35 Sample 2 Sample size 40 Sample 1...

8 . In the market, four assets are traded with payoffs S = 1 . 1 1 . 3 1 1 1 . 1 1 1 1 . 3 1 . 1 1 1 . 3 1 . The price of all assets is 1 . There is an investment opportunity that costs 2 . This...