Question: Straight preferred shares issued by a firm have a discount
Straight preferred shares issued by a firm have a discount rate of 8 percent per year, whereas these shares are yielding 6 percent on the $50 par value. The conversion value of these shares is calculated to be $40. Determine the straight preferred value (SPV) and the floor value for the convertible preferred shares. Assume the shares have no maturity and can therefore be valued as perpetuity.
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