Toronto Skaters Currently Has $1,000,000 of 8% Convertible Debt Outstanding

question 42

Essay

Toronto Skaters currently has $1,000,000 of 8% convertible debt outstanding.The coupon interest is paid on an annual basis.The $1,000 face value debentures mature in 12 years and have a conversion price of $50.Similar straight debt currently yields 7%.The firm's common stock is currently trading for $55 per share.What is the current straight debt value and the current conversion value of the convertibles? What is the floor price for the convertibles? If all the convertible holders decided to convert, how many additional shares would have to be issued?

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Definitions:

Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends, calculated as dividends per share divided by earnings per share.

Growth Rate of Earnings

It is the rate at which a company's earnings are increasing or decreasing over a specific period, often used by investors to gauge the company's profitability trends.

Constant-Growth DDM

A model for valuing a stock by assuming constant dividends that grow at a steady rate indefinitely.

Beta

A gauge for determining the volatility or inherent risk of a security or portfolio against the market at large.