韩山师范学院财务管理课件第十九章 Convertibles, Warrants and Derivatives.ppt

Chapter 19 Convertibles, Warrants,and Derivatives Review of Formulas 1. Basic Earnings after taxes earnings = (19-1) per share Shares of Common Stock 2. Diluted Adjusted earnings after taxes earnings = (19-2) per share Shares outstanding + All convertibles securities* *Other types of securities that create common stock, such as warrants and options, would also be included. Review of Formulas (continued) 3. Intrinsic value of a warrant I = (M — E) X N (19-3) where I = Intrinsic value of a warrant M = Market value of a common stock E = Exercise price of a warrant N = Number of shares each warrant entitles the holder to purchase 4. Speculative premium of a warrant S = W — I (19-4) where S = Speculative premium W = Warrant price I = Intrinsic value Chapter 19 - Outline LT 19-1 Convertible Security Convertible Terminology Advantages and Disadvantages of Convertible Securities Warrant Use of Warrants in Corporate Finance Options Convertible Security LT 19-2 Convertible Security: –a hybrid security combining features of debt and common equity – a bond or share of preferred stock that can be converted into common stock at the option of the holder – goes up in value if the common stock price increases – the holder receives a fixed rate of return before converting – represents a fixed income security that is potentially convertible into common stock if desired Convertible Terminology LT 19-3 Conversion Ratio: – number of shares of common stock into which the security may be converted Conversion Price: – par value of the bond / conversion ratio Conversion Value: – conversion ratio x market price of common stock Conversion Premium: – difference between the m