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(TCO F) Warren Corporation?s stock




Question;1(TCO F) Warren Corporation?s stock sells for $42/share. The company wants to sell some 20-year annual interest, $1000 par value bonds. Each bond would have 75 warrants attached to it, each exercisable into 1 share of stock at an exercise price of $47. The firm?s straight bonds yield 10%. each warrant is expected to have a market value of $2.00 given that the stock sells for $42. What coupon interest amount must the company set on the bonds in order to sell the bonds-with?warrants at par?a) 7.83%b) 8.24%c) 8.65%d) 9.08%e) 9.54%(TCO E) Dakota Trucking Company (DTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class. If the firm borrows and buys the truck, the loan rate would be 10% and the loan would be amortized over the truck?s 4-year life. The loan payments would be made at the end of each year. The truck will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $10,000. If DTC buys the truck, its after tax cash flows would be the following: Year 1: $6,339, Year 2: -4,764, Year 3: -9,943, Year 4: -5,640 all occurring at the end of their respective years. The lease terms call for a $10,000 lease payment (4 payments total) at the beginning of each year. DTC?s tax rate is 40%. Should the firm lease or buy?a) $849b) $896c) $945d) $997e) $1,047(I think that these are the amounts that represent the difference between the leasing amount and the buying amount but I am not sure.)


Paper#41009 | Written in 18-Jul-2015

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