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question 2 (b), the premium under Strand Co’s opinion,using EVA=NOPAT-(WACC*capital employed). But the answer uses pre-tax profit instead of NOPAT,why?
(C),convertible bond would be converted into 12 shares in six years,the share price is $100/12=$8.33,but why it doesn’t apply current share price of $9.24 of Hav Co?
Many thanks!!!First question:
The question gives the pre-tax return on capital, and so the answer uses the pre-tax earnings, subtracts the pre-tax ROCE, and then subtracts tax on the excess.
Second question:
The answer does explain this. Since the choice is to take $100 cash or 12 shares , this would give a value of $8.33 per share. However (as the answers does make clear) the share price will probably have in increased by the date of the conversion and be above $8.33.
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