Bài giảng Management theory and practice Financial: Chapter 16 với các nội dung cơ bản như: Types of hybrid and other securities; Features and risk; Cost concerns to the issuers. Hy vọng tài liệu là nguồn thông tin tin hữu ích cho quá trình học tập và nghiên cứu của các bạn. | Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-3 Corporate Valuation and Hybrid Financing Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-4 Topics in Chapter Types of hybrid and other securities Warrants Convertibles Securitized assets Features and risk Cost concerns to the issuers Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-5 Warrants A warrant is a long-term call option issued along with a bond Warrants are generally detachable from the bond and trade separately When warrants are exercised, issuing firm receives additional equity capital, and the original bonds remain outstanding Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-6 Initial market price of a bond with warrants Current stock price P0 = $20 Coupon rate of a regular 20-year annual payment bond without warrants rd=10% (. on-going rate) 45 warrants with a strike price of $25 each are attached to bond. Each warrant’s value is estimated to be $3 . | Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-3 Corporate Valuation and Hybrid Financing Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-4 Topics in Chapter Types of hybrid and other securities Warrants Convertibles Securitized assets Features and risk Cost concerns to the issuers Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-5 Warrants A warrant is a long-term call option issued along with a bond Warrants are generally detachable from the bond and trade separately When warrants are exercised, issuing firm receives additional equity capital, and the original bonds remain outstanding Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-6 Initial market price of a bond with warrants Current stock price P0 = $20 Coupon rate of a regular 20-year annual payment bond without warrants rd=10% (. on-going rate) 45 warrants with a strike price of $25 each are attached to bond. Each warrant’s value is estimated to be $3 The total package is sold for $1,000 Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-7 Step 1: Calculate VBond VPackage = VBond + VWarrants = $1,000 VWarrants = 45($3) = $135 VBond + $135 = $1,000 VBond = $865 Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-8 Step 2: Find Coupon Payment and Rate N I/YR PV PMT FV 20 10 -865 1000 Solve for payment = 84 Therefore, the required coupon rate is $84/$1,000 = , which is lower than the one associated with a regular bond without warrants. Impact on the package value from warrant prices After issue, if the warrant price goes up to $5 each, the package will be worth: V = $865 + 45($5) = $1,090. Since this is $90 more than the selling price, the firm could have set lower interest payments whose PV would be smaller by $90 per bond, or it could have offered fewer warrants and/or set a higher strike price. Copyright © 2011 by Nelson Education Ltd. All rights reserved. 16-9 Copyright © 2011 by Nelson Education Ltd.
