hybrid costing10

hybrid costing10 - Convertibles i . 14.00% 12.00% 10.80%...

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Convertibles Answer: e Diff: M i . Johnson Beverage’s common stock sells for $27.83, pays a dividend of $2.10, and has an expected long-term growth rate of 6 percent. The firm’s straight-debt bonds pay 10.8 percent. Johnson is planning a convertible bond issue. The bonds will have a 20-year maturity, pay $100 interest annually, have a par value of $1,000, and a conversion ratio of 25 shares per bond. The bonds will sell for $1,000 and will be callable after 10 years. Assuming that the bonds will be converted at Year 10, when they become callable, what will be the expected return on the convertible when it is issued? a. 14.00% b. 12.00% c. 10.80% d. 12.16% e. 11.44% Comparative after-tax yields Answer: c Diff: M ii . Deep River Power Corporation recently sold an issue of preferred stock that had an after-tax yield of 9.6 percent. The company’s new bonds recently sold at par with an after-tax yield of 8.1 percent. Both issues were placed primarily with corporate investors in the 40
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This note was uploaded on 08/04/2011 for the course COMM 101 taught by Professor Sy during the Spring '11 term at USC.

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hybrid costing10 - Convertibles i . 14.00% 12.00% 10.80%...

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