hard · Investment Banking valuation-core
A company has a convertible bond that is in-the-money. How does this impact the WACC calculation?
- The bond is included in both the debt and equity weights simultaneously to reflect its hybrid nature
- The bond's value is added to the market value of equity, and its interest is excluded from the cost of debt
- The bond is excluded from WACC entirely, since convertible debt is not part of the firm's permanent capital structure
- The bond is treated purely as debt because it still legally requires interest payments up until conversion occurs
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