Supreme Industries Issues the Following Announcement to Holders of an Issue

question 26

Multiple Choice

Supreme Industries issues the following announcement to holders of an issue of callable,convertible notes:
"Prior to the close of business on May 17,2008,holders may convert their Notes into shares of Supreme Industries common stock at 28.45 shares of Supreme Industries common stock per $1000 principal amount of the Notes.Cash will be paid in lieu of fractional shares.On April 16,2008,the last reported sale price of Supreme Industries common stock on the NYSE was $22.51 per share."
If on May 17,Supreme Industries is trading as $24.80,what is the value of common stock a holder of a $1,000 note would receive?

• A)$787.51
• B)$791.21
• C)$868.00
• D)$871.70

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income and the degree to which a company can increase operating income by increasing revenue.

Break-Even Point

The point at which total costs match total earnings from production or sales, leading to neither a profit nor a loss.

Maintenance Costs

The expenses incurred to keep an asset in working condition or restore it to proper operation.

Least-Squares Regression

A statistical method used to determine the line of best fit by minimizing the sum of the squares of the differences between observed values and those predicted by a linear function.