Question 16 of 23 An analyst is building a DCF for Anderson Plastics, a publicly traded plastics manufacturer, with 120 million shares of common stock currently outstanding and trading at $85 per share. Using the unlevered approach, the analyst calculates enterprise value of $3 billion and net debt of $800 million ($1 billion in gross debt, less $200 million in cash). After checking her work, she realizes that she did not reflect the following information in her calculations: There is a $100 million convertible preferred stock on the balance sheet. There are 200,000 preferred shares outstanding, with a liquidation value of $500 per share, and each convertible into 4 shares of common stock at the option of the holder. The preferred shareholders receive no preferred dividends. Question: Which of the following is the most appropriate adjustment needed to reflect the preferred stock details above? To answer the question, treat out-of-the-money convertible preferred stock as a debt-equivalent claim with no equity component and in-the-money convertible preferred stock as straight equity with no debt component. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. component and in-the-money convertible preferred stock as straight equity with no debt component. ° о The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should leave net debt unchanged at $800 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged at $800 milliono arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged. To arrive at equity value per share, divide equity value by a diluted share count of 120.2 million.