A firm requires $5 million in new long-term financing. The firm is trying to decide whether to sell common stock or a convertible bond. The market price of the common stock is currently $65 per share. In order to sell this new issue, the company would have to underprice the stock by $2 and would have to sell it for $63 per share. At present, the firm has 600,000 shares of common stock outstanding. The firm could also issue 20-year, 10 percent, and $1,000 par-value convertible bonds. They would set the conversion price at $73 per share, and the bond could be sold at par. The earnings for the firm should be $4,000,000 in the coming year. If the firm chooses the convertible bond, what will the earnings per share be after all bonds are converted? A) $6.67 B) $5.98 C) $5.85
A firm requires $5 million in new long-term financing. The firm is trying to decide whether to sell common stock or a convertible bond. The market price of the common stock is currently $65 per share. In order to sell this new issue, the company would have to underprice the stock by $2 and would have to sell it for $63 per share. At present, the firm has 600,000 shares of common stock outstanding. The firm could also issue 20-year, 10 percent, and $1,000 par-
A) $6.67
B) $5.98
C) $5.85
D) $5.78
and
A firm is in need of $2 million in new long-term financing. The firm is trying to decide whether to sell common stock or a convertible bond. The market price of the common stock at present is $42 per share. In order to sell this new issue, the stock has to be underpriced by $2 and sold for $40 per share. Currently the firm has 300,000 shares of common stock outstanding. The firm could also issue 20-year, 10 percent, and $1,000 par-value convertible bonds. They would set the conversion price at $50 per share, and the bond could be sold at par. The earnings for the firm should be $500,000 in the coming year. If the firm chooses the sale of common stock, what will the earnings per share in the coming year be?
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