Beruflich Dokumente
Kultur Dokumente
CHAPTER 21
Hybrid Financing: Preferred Stock,
Warrants, and Convertibles
P0 = $20.
kd of 20-year annual payment bond
without warrants = 12%.
50 warrants with an exercise price of
$25 each are attached to bond.
Each warrant’s value is estimated to
be $3.
Copyright © 2002 Harcourt, Inc. All rights reserved.
21 - 9
VBond = $850.
Copyright © 2002 Harcourt, Inc. All rights reserved.
21 - 10
20 12 -850 1000
N I/YR PV PMT FV
Solve for payment = 100
Par value
Pc = # Shares received
$1,000
= 40 = $25.
20 12 105 1000
N I/YR PV PMT FV
Solution: -887.96
8 -800 0 1200
N I/YR PV PMT FV
Solution: n = 5.27
0 1 2 3 4 5 6
(More...)
Copyright © 2002 Harcourt, Inc. All rights reserved.
21 - 33
D0(1 + g) $1.48(1.08)
ks = +g= + 0.08
P0 $20
= 16.0%.
Since kc is between kd and ks, the
costs
Copyright are consistent
© 2002 Harcourt, Inc. with the risks.
All rights reserved.
21 - 34
WACC Effects
0 1 2 3 4 5 6
Some notes:
We have assumed that ks is not affected
by the addition of convertible debt.
In practice, most convertibles are
subordinated to the other debt, which
muddies our assumption of kd = 12%
when convertibles are used.
When the convertible is converted, the
debt ratio would decrease and the firm’s
financial risk would decline.
0 1 ... 4 5 6 ... 19 20