Srorm Software wants to issue $100 million ($1,000 x 100,000 bonds) in new capital to fund new opportunities. If Storm raised the $100 million of new capital in a straight-debt 20-year bond offering, Storm would have to offer an annual coupon rate of 13%. However, Storm's advisers have suggested a 20-year bond offering with warrants. According to the advisers, Storm could issue 10% annual coupon-bearing debt with 28 warrants per $1,000 face value bond. Storm has 10 million shares of stock outstanding at a current price of $25. The warrants can be exercised in 10 years (on December 31, 2025) at an exercise price of $30. Each warrant entitles its holder to buy one share of Storm Software stock. After issuing the bonds with warrants, Storm's operations and investments are expected to grow at a constant rate of 12.6% per year.

1. If investors pay $1,000 for each bond, what is the value of each warrant attached to the bond issue? Round your answer to the nearest cent.
   
   $  
2. What is the component cost of these bonds with warrants? Round your answer to two decimal places.
   
     %
   
   What premium is associated with the warrants? Round your answer to two decimal places.
   
     %

Acquiror A wants to purchase 80% of Target B’s voting shares. Let’s say that Target B has 100 voting shares; current market price is equal to $10/share; number of shareholders is 100. In order to attract Target B’s shareholders, Acquiror A offers Target B’s shareholders $15/share. -

How much will it cost Acquiror A to purchase the # of Target B’s shares that it wishes to purchase? _______________________________________________________ (please show your calculation in answer)

BUT, Poison Pill: Target B has implemented a poison pill in response to this hostile takeover attempt. Target B offers each of its shareholders the opportunity to purchase 5 additional shares of Target B voting stock at $5/share (and all shareholders decide to take the deal and each purchase 5 additional shares at that price). How many shares of voting stock will Target B have outstanding after its shareholders purchase these additional shares under the poison pill_________________________(please show your calculation in answer)

After the poison pill, how much will it cost Acquiror A to purchase the # of Target B’s shares that it wants to purchase? ______________(please show your calculation in answer) -

BONUS POINT: What are any possible ramifications (i.e. consequences, positive and/or negative), of Target B’s poison pill plan?________________________________________________. ***

Gladstone Corporation is about to launch a new product. Depending on the success of the new​ product, Gladstone may have one of four values next​ year: $ 152 ​million, $ 140 ​million, $ 95 ​million, and $ 84 million. These outcomes are all equally​ likely, and this risk is diversifiable. Suppose the​ risk-free interest rate is 5 % and​ that, in the event of​ default, 27 % of the value of​ Gladstone's assets will be lost to bankruptcy costs.​ (Ignore all other market​ imperfections, such as​ taxes.) a. What is the initial value of​ Gladstone's equity without​ leverage? Now suppose Gladstone has​ zero-coupon debt with a $ 100 million face value due next year. b. What is the initial value of​ Gladstone's debt? c. What is the​ yield-to-maturity of the​ debt? What is its expected​ return? d. What is the initial value of​ Gladstone's equity? What is​ Gladstone's total value with​ leverage? Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year. e. If Gladstone does not issue​ debt, what is its share​ price?

f. If Gladstone issues debt of $ 100 million due next year and uses the proceeds to repurchase​ shares, what will its share price​ be? Why does your answer differ from that in part

​(e​)?

Gladstone Corporation is about to launch a new product. Depending on the success of the new​ product, Gladstone may have one of four values next​ year:

$ 155

​million,

$ 137

​million,

$ 96

​million, and

$ 83

million. These outcomes are all equally​ likely, and this risk is diversifiable. Suppose the​ risk-free interest rate is

5 %

and​ that, in the event of​ default,

23 %

of the value of​ Gladstone's assets will be lost to bankruptcy costs.​ (Ignore all other market​ imperfections, such as​ taxes.)

a. What is the initial value of​ Gladstone's equity without​ leverage?

Now suppose Gladstone has​ zero-coupon debt with a

$ 100

million face value due next year.

b. What is the initial value of​ Gladstone's debt?

c. What is the​ yield-to-maturity of the​ debt? What is its expected​ return?

d. What is the initial value of​ Gladstone's equity? What is​ Gladstone's total value with​ leverage?

Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

e. If Gladstone does not issue​ debt, what is its share​ price?

f. If Gladstone issues debt of

$ 100

million due next year and uses the proceeds to repurchase​ shares, what will its share price​ be? Why does your answer differ from that in part

​(e​)

Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year: $150 million, $135 million, $90 million, or $80 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is 5% and that, in the event of default, 25% of the value of Gladstone’s assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.).

(a) What is the initial value of Gladstone’s equity without leverage? Now suppose Gladstone has zero-coupon debt with a $100 million face value due next year.

(b) What is the initial value of Gladstone’s debt?

(c) What is the yield-to-maturity of the debt? What is its expected return?

(d) What is Gladstone’s total value with leverage? What is the value of Gladstone’s levered equity? Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

(e) If Gladstone does not issue debt, what is its share price?

(f) If Gladstone issues debt with face value $100 million due next year and uses the proceeds to repurchase shares, what will its share price be? Why does your answer differ from that in part (e)?

Gladstone Corporation is about to launch a new product. Depending on the success of the new​ product, Gladstone may have one of four values next​ year: $146 ​million, $138 ​million, $92 ​million, and $81 million. These outcomes are all equally​ likely, and this risk is diversifiable. Suppose the​ risk-free interest rate is 5% and​ that, in the event of​ default, 28% of the value of​ Gladstone's assets will be lost to bankruptcy costs.​ (Ignore all other market​ imperfections, such as​ taxes.)

a. What is the initial value of​ Gladstone's equity without​ leverage? Now suppose Gladstone has​ zero-coupon debt with a $100 million face value due next year.

b. What is the initial value of​ Gladstone's debt?

c. What is the​ yield-to-maturity of the​ debt? What is its expected​ return?

d. What is the initial value of​ Gladstone's equity? What is​ Gladstone's total value with​ leverage?

Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

e. If Gladstone does not issue​ debt, what is its share​ price?

f. If Gladstone issues debt of $100 million due next year and uses the proceeds to repurchase​ shares, what will its share price​ be? Why does your answer differ from that in part ​(e​)?

Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales. Sales for the year are expected to total 1,700,000 units. Quarterly sales are 19%, 27%, 23%, and 31%, respectively. The sales price is expected to be $42 per unit for the first three quarters and $44 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 15% higher than the budgeted sales for the first quarter of 2017.

Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarter’s budgeted sales volume.

Direct materials. Each unit requires 2 pounds of raw materials at a cost of $10 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 502,000 pounds.

Prepare the sales, production, and direct materials budgets by quarters for 2017.

Pargo Company is preparing its master budget for 2020. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Prepare the sales, production, and direct materials budgets by quarters for 2020.

RiverbedCompany is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Sales. Sales for the year are expected to total 1,400,000 units. Quarterly sales are 18%, 26%, 24%, and 32%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $46 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 10% higher than the budgeted sales for the first quarter of 2017. Production. Management desires to maintain the ending finished goods inventories at 20% of the next quarter’s budgeted sales volume. Direct materials. Each unit requires 2 pounds of raw materials at a cost of $12 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 505,000 pounds.

A.) Prepare the production budget by quarters for 2017.

B.) Prepare the direct materials budget by quarters for 2017.