For companies whose value consists in large part of "real options"- growth opportunities that may (or may not) materialize-convertible bonds may offer the ideal financing vehicle because of the matching financial options built into the securities. This paper proposes that convertible debt can be a key element in a financing strategy that aims not only to fund current activities, but to give companies access to low-cost capital if and when their real investment options turn out to be valuable. In this sense, convertibles can be seen as the most cost-effective solution to a sequential financing problem-how to fund not only today's activities, but also tomorrow's growth opportunities (some of them not yet even foreseeable). 2000 Morgan Stanley.
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