Warrants

Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $28.

A. Calculate the exercise value of the firm's warrants if the common sells at each of the following prices: (1) $20, (2) $25, (3) $30, (4) $100. (Hint: A warrant's exercise value is the difference between the stock price and the purchase price specified by the warrant if the warrant were to be exercised.)

(1)          $20         $ 

(2)          25           $ 

(3)          30           $ 

(4)          100         $ 

B. Assume the firm's stock now sells for $20 per share. The company wants to sell some 20-year, $1,000 par value bonds with interest paid annually. Each bond will have attached 50 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm's straight bonds yield 12%. Assume that each warrant will have a market value of $3.5 when the stock sells at $20. What coupon interest rate must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.) Round your answer to two decimal places.

%

C. What dollar coupon must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.) Round your answer to the nearest dollar.

$