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agoldberg2011 agoldberg2011
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8 months ago

Canada Corp.
A firm has $10 million of outstanding convertible bonds. The coupon on these convertibles is $100 per bond, and each bond is convertible into common stock at a conversion price of $25.

The income statement of the firm before conversion is as follows and EBIT remains at $6 million after conversion. Assume the firm paid $2 million in interest on other outstanding debt in addition to the interest paid on the convertible bonds.

 

Millions of Dollars before Conversion

EBIT

6.0

Interest @10%

–3.0

Earnings before taxes (EBT)

3.0

Taxes @40%

–1.2

Earnings after taxes (EAT)

1.8

  
Shares outstanding (millions)

1.0

Earnings per share (EPS)

$1.80


Refer to Scenario: Canada Corp. After conversion, how much is the firm’s after-tax earnings?


▸

$1.71 million



▸

$2.04 million



▸

$2.40 million



▸

$3.17 million

Textbook 
Financial Management: Theory and Practice

Financial Management: Theory and Practice


Edition: 4th
Authors:
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agoldberg2011 Author
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8 months ago
Thanks for your help!!
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Thank you, thank you, thank you!
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This site is awesome
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