Financial Management: Theory & Practice
Financial Management: Theory & Practice
15th Edition
ISBN: 9781337248006
Author: Eugene F. Brigham; Michael C. Ehrhardt
Publisher: Cengage Learning US
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Chapter 20, Problem 6MC
Summary Introduction

Case summary:

Company E is developing educational software for the primary and secondary school markets. In order to maintain the market place the owner entrusted the financial manager with the task to increase the market share which raises the capital requirements. Person P after observing the market trends analyse that the stock price of the company may rise in future thus, cannot raise the new capital and also due to the high interest rates and B rating of the firm it cannot issue the debt instruments. Person P came up with three alternatives, preferred stock, bonds with warrants and convertible bonds and required to make choice out of these three financial alternatives.

To determine: The way convertible bonds reduces the agency costs.

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