22 Jul WHAT IS ROOPS ANNUAL BEFORE-TAX INTEREST SAVINGS ON THE CONVERTIBLE ISSUE VERSUS A STRAIGHT-DEBT ISSUE?
Convertible Bond Analysis Fifteen years ago Roop Industries sold $400 million of convertible bonds. Show more Convertible Bond Analysis Fifteen years ago Roop Industries sold $400 million of convertible bonds. The bonds had a 40-year maturity a 5.75% coupon rate and paid interest annually. They were sold at their $1000 par value. The conversion price was set at $64.15 and the common stock price was $59 per share. The bonds were subordinated debentures and were given an A rating; straight nonconvertible debentures of the same quality yielded about 8.75% at the time Roops bonds were issued. Calculate the premium on the bonds that is the percentage excess of the conversion price over the stock price at the time of issue. Round your answer to two decimal places. % What is Roops annual before-tax interest savings on the convertible issue versus a straight-debt issue? Round your answer to the nearest whole. Enter your answer in millions. For example an answer of $25000000 should be entered as 25. $ million per year At the time the bonds were issued what was the value per bond of the conversion feature? Round your answer to the nearest cent. $ Suppose the price of Roops common stock fell from $59 on the day the bonds were issued to $31.25 now 15 years after the issue date (also assume the stock price never exceeded $64.15). Assume interest rates remained constant. What is the current price of the straight bond portion of the convertible bond? Do not round your intermediate calculations. Round your answer to the nearest cent. $ What is the current value if a bondholder converts a bond? Do not round your intermediate calculations. Round your answer to the nearest cent. $ Do you think it is likely that the bonds will be converted? The bonds originally sold for $1000. If interest rates on A-rated bonds had remained constant at 8.75% and if the stock price had fallen to $31.25 then what do you think would have happened to the price of the convertible bonds? (Assume no change in the standard deviation of stock returns.) Round your answers to the nearest cent. The value of straight bond would have from $ at the time of issue to $ fifteen years later. Now suppose that the price of Roops common stock had fallen from $59 on the day the bonds were issued to $31.25 at present 15 years after the issue. Suppose also that the interest rate on similar straight debt had fallen from 8.75% to 5.75%. Under these conditions what is the current price of the straight-bond portion of the convertible bond? Do not round your intermediate calculations. Round your answer to the nearest dollar. $ What is the current value if a bondholder converts a bond? Do not round your intermediate calculations. Round your answer to the nearest cent. $ What do you think would have happened to the price of the bonds? Show less
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