Question

"Convertible Debt vs. Debt Issued with Stock Warrants"

Suppose management needs large sums of cash to finance the construction of a new manufacturing plant and is considering issuing debt to obtain the cash. Management is unsure of whether to issue convertible debt or debt issued with stock warrants. You are the senior accountant at your company, and management has asked for your help.

• Explain the similarities and differences between convertible debt and debt issued with stock warrants. Also, make a recommendation to management about the type of debt it should issue. Provide a rationale for your recommendation.  

Answer 1

Answer;

Meaning;- Convertible Debt means Debt Holder Receive a interest and Option to a convert after Fixed time to convert

Debt to Equity Shares as per company Share Value at a converting time.

Debt issued with Warrant means Debt holder give a right to Stock warrant to Fixed Price ( Below the market Price )

Convert after Fixed time periods.

Decision-Company issued to Convertible debt because if Company Share price are raise due to plant Productivity than

minimum Share are to be issued to Debts holder.

company benefit .