Convertible preferred stock Valerian Corp. convertible preferred stock has a fixed conversion ratio of 10 common shares per 1 share of preferred stock. The preferred stock pays a dividend of $6.00 per share per year. The common stock currently sells for $40 per share and pays a dividend of $2.00 per share per year. a. On the basis of the conversion ratio and the price of the common shares, what is the current conversion value of each preferred share? b. If the preferred shares are selling at $403 each, should an investor convert the preferred shares to common shares? c. What factors might cause an investor not to convert from preferred to common stock? a. The current conversion value of each preferred share is S. (Round to the nearest dollar.) b. If the preferred shares are selling at $403 each, should an investor convert the preferred shares to common shares? (Select the best answer below.) O Yes O No c. What is one factor that might cause an investor not to convert from preferred to common stock? (Select the best answer below.) O A. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are greater than what they would receive on the preferred stock. O B. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are less than what they would receive on the preferred stock. O C. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are equal to what they would receive on the preferred stock.
Convertible preferred stock Valerian Corp. convertible preferred stock has a fixed conversion ratio of 10 common shares per 1 share of preferred stock. The preferred stock pays a dividend of $6.00 per share per year. The common stock currently sells for $40 per share and pays a dividend of $2.00 per share per year. a. On the basis of the conversion ratio and the price of the common shares, what is the current conversion value of each preferred share? b. If the preferred shares are selling at $403 each, should an investor convert the preferred shares to common shares? c. What factors might cause an investor not to convert from preferred to common stock? a. The current conversion value of each preferred share is S. (Round to the nearest dollar.) b. If the preferred shares are selling at $403 each, should an investor convert the preferred shares to common shares? (Select the best answer below.) O Yes O No c. What is one factor that might cause an investor not to convert from preferred to common stock? (Select the best answer below.) O A. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are greater than what they would receive on the preferred stock. O B. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are less than what they would receive on the preferred stock. O C. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are equal to what they would receive on the preferred stock.
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 15P
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Transcribed Image Text:Convertible preferred stock Valerian Corp. convertible preferred stock has a fixed conversion ratio of 10 common shares per 1 share of preferred stock. The preferred stock pays a dividend of $6.00 per share per year. The
common stock currently sells for $40 per share and pays a dividend of $2.00 per share per year.
a. On the basis of the conversion ratio and the price of the common shares, what is the current conversion value of each preferred share?
b. If the preferred shares are selling at $403 each, should an investor convert the preferred shares to common shares?
c. What factors might cause an investor not to convert from preferred to common stock?
a. The current conversion value of each preferred share is $. (Round to the nearest dollar.)
b. If the preferred shares are selling at $403 each, should an investor convert the preferred shares to common shares? (Select the best answer below.)
O Yes
No
c. What is one factor that might cause an investor not to convert from preferred to common stock? (Select the best answer below.)
O A. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are greater than what they would receive on the preferred stock.
O B. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are less than what they would receive on the preferred stock.
OC. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are equal to what they would receive on the preferred stock.
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