Contents

Case I: The Debt Is Risk-Free 469 Case II: The Debt Is Risky 469

14.6 Options and Capital Budgeting 471

The Investment Timing Decision 471 Managerial Options 473 Contingency Planning 474 Options in Capital Budgeting: An Example 475 Strategic Options 476 Conclusion 476

14.7 Options and Corporate Securities 477

Warrants 477

The Difference between Warrants and Call Options Earnings Dilution 478 Convertible Bonds 478

Features of a Convertible Bond 478 Value of a Convertible Bond 479 Other Options 480

The Call Provision on a Bond 480 Put Bonds 481

Insurance and Loan Guarantees 481

14.8 Summary and Conclusions 482

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