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A firm needs $2 million of new long-term financing. The firm is considering the sale of common stock ...

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A firm needs $2 million of new long-term financing. The firm is considering the sale of common stock ...

A firm needs $2 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 $42 per share. To sell this new issue, the stock would have to be underpriced by $2 and sold for $40 per share. The firm currently has 300,000 shares of common stock outstanding. The alternative is to issue 20-year, 10 percent, and $1,000 par-value convertible bonds. The conversion price would be set at $50 per share, and the bond could be sold at par. The earnings for the firm are expected to be $500,000 in the coming year. Assuming the firm chooses the sale of common stock, the earnings per share in the coming year will be ________.
A) $1.43
B) $1.44
C) $1.45
D) $1.47

Textbook

Principles of Managerial Finance

Edition: 14^th

Authors: Gitman, Zutter

Read 96 times

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7 years ago

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