Find the conversion price of stock

Reference no: EM1345017

The tsetsekos Company was planning to finance an expansion. The principal executives of the company all agreed that an industrial company such as theirs should finance growth by means of common stock rather than by debt. However, they felt that the current $42 per share price of the company's common stock did not reflect its true worth so they decided to sell a convertible security. They considered a convertible debenture, but feared the burden of fixed interest charges if the common stock did not rise enough in price to make the conversion attractive. They decided on an issue of convertible preferred stock, which would pay a dividend of $2.10 per share.

a) The conversion ratio will be 1:1; that is each share of convertible preferred can be converted into a single share of common. Therefore, the convertibles par value and also the issue price will be equal to the conversion price, which in turn will be determined as a premium (ie, the percentage by which the conversion price exceeds the stock price) over the current market price of the common stock. What will the conversion price be if it is set at a 10% premium? At a 30% premium?

Reference no: EM1345017

Questions Cloud

Explain terrorist attacks foster instability and may affect : Explain terrorist attacks foster instability and may affect productivity over the short and long term.

Evaluate the required return for an asset : Evaluate the required return for an asset with a beta of .90 when the risk-free rate and market return are 6% and 10% respectively and fine the risk-free rate for a firm with a required return of 12% and a beta of 1.25

Explain sensitivity analysis : What role does this type of analysis play in your work environment or in your home environment and also explain sensitivity analysis.

How far does the bullet penetrate while stopping : the 25g bullet travelling at 350m/s strikes a block of wood. The block of wood exerts an average force of 50,000N opposing the motion of the bullet. How far does the bullet penetrate while stopping.

Find the conversion price of stock : The tsetsekos Corporation was considering to finance an expansion. The principal executives of the c orporation all agreed that an industrial company such as theirs should finance growth by means of common stock rather than by debt.

What is the depth of the water remaining in the tank : A baseball is hit at ground level. The ball reaches its maximum height above ground level 3.0 s after being hit. Then 2.5s after reaching its maximum height, ball barely clears a fence that is 97m from where it was hit. Suppose the ground is level..

What required rate of return for this stock : What required rate of return for this stock would result in a price per share of $40 and if Sonik has an earnings and dividend growth rate of 11%, what required rate of return would result in a price per share of $40?

Find the maximum height it reaches : A 115 granite cube slides down a 35 frictionless ramp. At the bottom, just as it exits onto a horizontal table, it collides with a 235 steel cube at rest.

Evaluate the original price per share : Evaluate the original price per share that the firm sold its single issue of common stock - issue of preferred stock and one issue of common stock outstanding

User Account

All Pages