Applied Corporate Finance

Spring semester 2023-24

Case: MoGen

Support questions:
1. Explain MoGen's business model and how its financial policy fits with it. In
particular explain the inter-relation between business risk, financial policy and
dividend / share buyback policy.
2. Should MoGen raise $5 billion in external finance in 2006? What are the
alternatives?
3. What are the advantages and disadvantages for a company such as Mogen to issue
convertible bonds at this stage? Shouldn't a straight bond be more appropriate?
What about a zero-coupon bond issue?
4. Use Black-Scholes model to estimate the value of the conversion option with a 15%,
20%, 25% and 30% conversion premiums for one share of MoGen stock. Convert
this option value per share into the option value for a bond with $1000 face value
and expand it into the expected $5 billion issue.
5. Calculate the value of the straight bond component. What coupon rate should Mr.
Manaavi propose in order for the convert to sell at exactly $ 1000 per bond
considering each of the previous question's conversion premiums?
6. As MoGen’s CEO, what do you like and not like about this proposal from Merrill
Lynch? In particular, do you like the 25% conversion premium? What about the
coupon rate?