# FINANCE EXERCISES ASSIGNMENT

E17-1 N and M Corp. is considering leasing a new machine for \$35,000 per year. The lease arrangement calls for a 5-year lease with an option to purchase the machine at the end of the lease for \$5,500. The firm is in the 40% tax bracket. What is the present value of the lease outflows, including the purchase option, if lease payments are made at the end of each year and if the after-tax cost of debt is 6%?E17-2 During the past 2 years Meacham Industries issued three separate convertible bonds. For each of them, calculate the conversion price:a. A \$1,500-par-value bond that is convertible into 10 shares of common stock.b. A \$3,000-par-value bond that is convertible into 25 shares of common stock.c. A \$4,500-par-value bond that is convertible into 60 shares of common stock.E17-3 Newcomb Company has a bond outstanding with a \$1,800 par value and convertible at \$60 per share. What is the bond’s conversion ration? If the underlying stock currently trades at \$55 per share, what is the bond’s conversion value? Would it be advisable for a bondholder to exercise the conversion option?E17-4. Crystal Cafes recently sold a \$2,400-par-value, 15-year convertible bond with an 10% coupon interest rate. The interest payments will be paid annually at the end of each year and the principal will be repaid at maturity. A similar bond without a conversion feature would have sold with a 9% coupon interest rate. What is the minimum price that the Crystal Cafes’ convertible bond should sell for?E17-5 A 6-month call option on 100 shares of SRS Corp. stock is selling for \$500. The strike price for the option is \$40. The stock is currently selling at \$38 per share. Ignoring brokerage fees, what price must the stock achieve just to cover the expense of the option? If the stock price rises to \$48, what will the net profit on the option contract be?

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