Prince Equipment has to decide whether to obtain $1,000,000 of financing by: (1) selling common stock...
Prince Equipment has to decide whether to obtain $1,000,000 of financing by: (1) selling common stock at its current price of $40 per share or (2) selling convertible bonds. The firm currentlly has 250,000 shares of common stock outstanding. If it issues convertible bonds, a bond will be sold at $1,000 par value and the convertible price at $45. Price Equipment expects its earnings available to common stockholders to be $700,000 each year over the next several years.
(i) Calculate the number of shares the firm would need to sell to raise the $1,000,000.
(ii) Find out the diluted earnings per share resulting from the sale of common stock.
Homework Answers
i. Number of shares the firm would need to sell to raise $ 1,000,000 = $ 1,000,000 / $ 40 = 25,000 shares.
ii. Earnings per share resulting from sale of common stock = $ 700,000 / ( 250,000 + 25,000) = $ 2.55 per share.
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Prince Equipment has to decide whether to obtain $1,000,000 of
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