BigSteel Inc is a large producer of steel and related products based in the country of Esseckia. Over the last several y

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Bigsteel Inc Is A Large Producer Of Steel And Related Products Based In The Country Of Esseckia Over The Last Several Y 1 (47.33 KiB) Viewed 25 times

BigSteel Inc is a large producer of steel and related products based in the country of Esseckia. Over the last several years, the company has struggled to remain profitable. International competition can sell at low steel prices and, in order to maintain its market share, BigSteel has been forced to sell its products at prices below its industrial costs. As a result, BigSteel has accumulated 57,000,000 Euros in losses which have been financed by local banks through an equal amount of current loans BigSteel is an important player for the public authorities of Esseckis, and they intend to keep it afloat by offering the company to repay its loans with local banks, and substitute them with a bond guaranteed by the government of Esseckia. Effectively, the government is a AAA rated and a risk-less borrower, so BigSteel can swap its existing current loans with a less expensive bond. The public authorities of Esseckia propose to BigSteel to issue nominal 60,000,000 euro of zero-coupon bonds to be repaid in five years from now. These bonds will be sold in the capital market at their current value, proceeds will be retained by BigSteel and used to repay local bank loans. Lucy Smart is the CFO of BigSteel. She is reading her computer screen in her office. The screen shows the current quotations for different options written on 1 share of BigSteel, for the same maturity (2 years), as well as BigSteel current spot price: Strike 1 4 Put price Call Price Big Steel Current Stock Price Option Strike Price Maturity in Years Strike 2 9.2 2.5 56 66 2 Strike 3 13.9 1.5 56 72 2 56 60 2 N Lucy wonders whether the money raised by selling today nominal 60,000,000 euros of five-years bonds will be sufficient to pay back all of the money loaned from local banks. Please help Lucy 1) Will she be able to entirely pay back BigSteel's current debt of 57,000,000 euros? Yes or no? 2) If not, how much can she give back and how much will she have in excess or, conversely, still owe to the local banks?