A share of a ventures preferred stock is convertible into 1.5 shares of its common stock .
Question:
A. If the firm’s common stock is currently trading at $9.75, what is the conversion value of a share of the preferred stock?
B. What would be the dividend yield on the preferred stock based on its conversion value?
C. What explanation would you give if the venture’s preferred stock currently trades at $15? What would be the dividend yield?
D. If the venture doubles the number of shares of its common stock that are outstanding (and cuts its stock price in half) but increases the conversion terms on its preferred stock to 2.5 shares of common stock, what would be the conversion value of a share of preferred stock after the new common stock issue? What would be the dividend yield on the preferred stock based on this new conversion value?
E. If the venture increased its common stock offering by 50 percent (instead of 100 percent), what common stock conversion ratio would be needed on a share of preferred stock to keep its conversion value the same as it was before the new common stock issue?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Entrepreneurial Finance
ISBN: 978-0538478151
4th edition
Authors: J . chris leach, Ronald w. melicher
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