When nando corporation issued the convertible debt

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Question - Nando Corporation had net income of $54,100 for the year ended December 31, 2020, and a weighted average number of common shares outstanding of 14,000. The following information is provided regarding the capital structure:

1. 5% convertible debt, 220 bonds each convertible into 42 common shares. The bonds were outstanding for the entire year. The income tax rate is 45%. The bonds were issued at par ($1,000 per bond). No bonds were converted during the year.

2. 4% convertible, cumulative $100 preferred shares, 1,000 shares issued and outstanding. Each preferred share is convertible into 3 common shares. The preferred shares were issued at par and were outstanding the entire year. No shares were converted during the year.

Required - When Nando Corporation issued the 5% convertible debt, would the company's interest rate on straight debt have been higher or lower than 5%?

Reference no: EM133007079

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