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Sholpan [36]
3 years ago
11

Rizzo Company has debentures ($1,000 par) outstanding that are convertible into the company's common stock at a price of $25. Th

e convertibles have a coupon interest rate of 8% and mature in 12 years. In addition, the convertible debenture is callable at 110% of the par value. Straight debt of equivalent risk is yielding 12%. The company's common stock is selling at $22 per share. The company has a marginal tax rate of 40%. Determine the conversion value of the issue
Business
1 answer:
Phantasy [73]3 years ago
5 0

Answer:

A. $880

B. -$752.23

Explanation:

Calculation to determine the conversion value of the issue

First step is to calculate the Conversion ratio using this formula

Conversion ratio=Per value of security/ Conversion price

Let plug in the formula

Conversion ratio=$1,000/$25

Conversion ratio=40

Now let determine the Conversion value using this formula

Conversion value =Conversion ratio*Conversion price

Let plug in the formula

Conversion value=40*$22 per share

Conversion value=$880

Therefore the conversion value of the issue is $880

B. Calculation to determine the Straight bond value of the issue

Using financial calculator to the Present Value (PV)

PMT=8%*1,000=80

N=12 years

1/Y=12%

FV=1,000

PV=-$752.23

Therefore the Straight bond value of the issue is -$752.23

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Consider the following​ statement: ​"An increase in supply decreases the equilibrium price. The decrease in price increases​ dem
pochemuha

Answer:

The correct answer is option A.

Explanation:

An increase in supply decreases the equilibrium price as the supply curve shifts rightward and intersects the demand curve at a lower point. This decline in the equilibrium price causes the quantity demanded to increase. The demand for the product remains the same.

The statement given in the question is false. A change in demand is caused by a change in other factors while the price of the product remains the same. The change in price affects the quantity demanded.

5 0
3 years ago
Precision Aviation had a profit margin of 7.00%, a total assets turnover of 1.4, and an equity multiplier of 1.8. What was the f
Novosadov [1.4K]

Answer:

17.64%

Explanation:

Precision aviation has a profit margin of 7%

The total assets turnover is 1.4

The equity multiplier is 1.8

Therefore the ROE can be calculated as follows

= Total assets turnover × equity multiplier × profit margin

= 1.4 × 1.8 × 7

= 17.64%

Hence the ROE is 17.64%

7 0
3 years ago
Product V72 sells for $20 per unit as is, but if enhanced it can be sold for $25 per unit. The enhancement process will cost $52
Furkat [3]

Answer:

It will incur an Opportunity cost of $8,000.

Explanation:

It will incur the opportunity cost of $8000 because the additional unit produces by the company then the additional revenue that is generated will be equal to the amount (25 - 20) x 12,000 = 60,000. Since the additional cost, that incurs for the production of 12000 units is 52000. Therefore the profit earned is $8000.

So if the company does not produce it then it will lose the profit of $8000.

3 0
2 years ago
Common stocks have less security than ______________ stock, but it also has greater potential for reward.
Yuri [45]

Your answer is, Preferred.

<h3><u>What is a Preferred Stock</u></h3>

Preferred stock is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument.

<h3><u>Impact of a Preferred Stock</u></h3>

Companies that offer preferred shares instead of issuing bonds can accomplish a lower debt-to-equity ratio. That allows them to gain significantly more future financing from new investors. A company's debt-to-equity ratio is one of the most common metrics used to analyze the financial stability of a business.

<h3><u>The 5 types of Preferred Stock</u></h3>
  • cumulative
  • participating
  • convertible
  • callable
  • adjustable-rate

Thus, <u>option c</u> is your answer.

Learn more about a Preferred Stock here: brainly.com/question/18068539

6 0
2 years ago
DeLong Corporation was organized on January 1, 2017. It is authorized to issue 14,500 shares of 8%, $100 par value preferred sto
Valentin [98]

Answer and Explanation:

According to the scenario, computation of the given data are as follow:

Journal entries

On Jan. 10

Cash A/c ($6 × 84,500)       Dr.    $507,000

 To Common stock A/c    ($3 ×84,500)          $253,500

 To Paid in capital in excess of stated value common stock A/c  $253,500      

On Mar. 1

Cash A/c($110 × 5,150) A/c       Dr.      $566,500

     To Preferred stock A/c ($100 × 5150)       $515,000

    To Paid in capital in excess of par –preferred stock A/c    $51,500

 (Being the issuance of the preferred stock is recorded)

On April 1

Land A/c            Dr.       $81500

    To Common stock A/c ($3 × 23,500)  $70,500

    To Paid in capital in excess of stated value common stock A/c    $11,000

 (Being the issuance of the common stock is recorded)

On May 1

Cash A/c ($5 × 84,000)           Dr.       $420,000

    To Common stock A/C($3 × 84,000)        $252,000

    To Paid in capital in excess of stated value common stock A/c      $168,000

 (Being the issuance of the common stock is recorded)

On Aug. 1

Organizational expenses A/c             Dr.      $39,500

     To Common stock A/c ($3 × 10,000)       $30,000

     To Paid in capital in excess of stated value common stock A/c      $9,500

 (Being the issuance of the common stock is recorded)

On Sep 1

Cash A/c ($7 × 11,500)      Dr.      $80,500

       To Common stock ($3 × 11,500)         $34,500

        To Paid in capital in excess of stated value common stock A/c   $46,000

 (Being the issuance of the common stock is recorded)

On Nov 1

Cash A/c ($111 × 2,000)      Dr.      $222,000

       To Preferred stock A/c ($100 × 2,000)       $200,000

       To Paid in capital in excess of par-preferred stock A/c        $22,000

 (Being the issuance of the preferred stock is recorded)

3 0
3 years ago
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