Valdes Enterprises is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 10.00%. The stock currently sells for $40.00 a share, has an expected dividend in the coming year of $2.00, and has an expected constant growth rate of 5.00%. What is the estimated floor price of the convertible at the end of Year 3?
Bond V = $80(PVIFA10%,7) + $1,000(PVIF10%,7) = $902.63.
Conversion V = 20($40)(1.05) 3 = $926.10. The floor value is the greater of the bond value or the conversion value. Thus, the floor value is $926.10.
Experts are very well versed in their ability to complete assignments. They just don’t adhere to the instructions or guildlines provided.
Will use services again, but will provide extreme detail with instructions