Which plan results in less dilution of earnings per share

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Reference no: EM131051172

A firm needs $1.5 million of new long-term 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 30-year, 8 percent, and $1,000 par-value convertible bonds. The conversion price would be set at $10 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 common stock with an EPS of $1.17. B. The convertible bond with an EPS of $1.04. C. The common stock with an EPS of $1.00. D. The convertible bond with an EPS of $1.00.

Reference no: EM131051172

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