Executrain Has 50,000, 7%, Bonds Outstanding for the Second Half

question 79

Multiple Choice

Executrain has 50,000, 7%, bonds outstanding for the second half of the year. Each $1,000 bond, sold July 1 at par, is convertible into 10 shares of common stock. The corporate tax rate is 40%. What is the incremental income per common share from the convertible bonds?

• A) $7.00
• B) $2.10
• C) $6.00
• D) $4.20

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Definitions:

Average Cost

Generally refers to the average total cost, representing the per unit total cost of production, including both fixed and variable costs.

Average Total Cost Curve

A graphical representation showing how the average cost of production changes as the quantity of output is altered.

Total Cost

The total amount of money spent on creating goods or services, encompassing both constant and fluctuating expenses.

Producing

Producing involves the creation, manufacturing, or assembly of goods and services for sale or distribution.