1. Alpha Corporation is prohibited from issuing more senior debt unless net tangible assets exceed 200% of senior debt. Currently the company has $100 million of senior debt outstanding and has net tangible assets of $250 million. How much more senior debt can Alpha Corp. issue?
2. Iota Microsystems’ 10% convertible bond is about to mature with a redemption value of $1,000. The conversion ratio is 27.
a. What is the conversion price?
b. The stock price is $47. What is the conversion value?
c. Should you convert? To decide, compare the conversion value to the bond’s value at maturity.
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