A Firm Needs $5 Million of New Long-Term Financing

question 46

Multiple Choice

A firm needs $5 million of new long-term financing. The firm is considering the sale of common stock or a convertible bond. The current market price of the common stock is $65 per share. To sell this new issue, the stock would have to be underpriced by $2 and sold for $63 per share. The firm currently has 600,000 shares of common stock outstanding. The alternative is to issue 20-year, 10 percent, and $1,000 par-value convertible bonds. The conversion price would be set at $73 per share, and the bond could be sold at par. The earnings for the firm are expected to be $4,000,000 in the coming year. Assuming the firm chooses the convertible bond, the earnings per share after all bonds are converted will be ________.

• A) $6.67
• B) $5.97
• C) $5.85
• D) $5.78

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Definitions:

Anaerobic

Describes processes or organisms that do not require oxygen for growth or survival.

Aerobic

Pertaining to exercises or activities that improve the efficiency of the body's cardiovascular system in absorbing and transporting oxygen.

Anaerobic

A type of exercise or activity that occurs in the absence of sufficient oxygen and relies on energy sources within the muscles, typically associated with short, intense bursts of effort.

Aerobic

Pertaining to activities or exercises that improve the efficiency of the body's cardiovascular system in absorbing and transporting oxygen.