A firm needs $1.5 million of new longterm financing. The firm is considering the sale...
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Finance
A firm needs $1.5 million of new
longterm
financing. The firm is considering the sale of common stock or a convertible bond. The current market price of the common stock is $16 per share. To sell this new issue, the stock would have to be underpriced by $1 and sold for $15 per share. The firm currently has 600,000 shares of common stock outstanding. The alternative is to issue
30year,
8 percent, and $1,000
parvalue
convertible bonds. The conversion price would be set at $20 per share, and the bond could be sold at par. The earnings for the firm are expected to be $700,000 in the coming year. Which plan results in less dilution of the earnings per share?
A.
The convertible bond with an EPS of $1.17.
B.
The common stock with an EPS of $1.00.
C.
The convertible bond with an EPS of $1.00.
D.
The common stock with an EPS of $1.17.
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