A Firm Issues the Convertible Debt Shown Above

question 54

Multiple Choice

A firm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $27.24. What is the minimum conversion ratio that would make a bondholder prefer to convert rather than accept the call price?

• A) 33 shares per $1,000 principal amount
• B) 36 shares per $1,000 principal amount
• C) 38 shares per $1,000 principal amount
• D) 42 shares per $1,000 principal amount

---

Definitions:

WACC

Weighted Average Cost of Capital, a calculation of a firm's cost of capital wherein each category of capital is proportionately weighted.

Risk Similarity

The degree to which different investments share similar risk characteristics.

Current Operations

The day-to-day activities involved in running a business, such as sales, maintenance, and administration, which directly relate to its main activities.

Flotation Costs

The expenses incurred by a company in issuing new securities, including underwriting fees, legal fees, and registration fees.