Question

ASsignment 20O-Hybria Fnancing-Preierred Stock, Wartants, and convertibies Just like any financing security, convertibles have certain advantages and disadvantages Based on your understanding of using convertibles for financing, identify whether each of the features listed in the following table is an advantage or a disadvantage from an issuer's standpoint: Advantage Disadvantage Feature Convertibles allow investors to buy the company's shares at a certain strike price. Conversion usually takes place when the company's share price increases beyond the strike price. Convertible securities are usually exercised when the stock price increases and becomes higher than the strike price in the convertible contract. Under these circumstances, the company is better off refunding debt by Issuing stock when the stock price increases. If a company needs capital and wants to issue new stock but the current stock price is undervalued, the company can use convertibles to sell stock at a predetermined price. Considering the pros and cons of convertible securities, under which of the following two situations is a company O When the issuing company needs to raise equity financing but feels the market price of its stock is selling O When the issuing company needs to raise equity financing but feels the market price of its stock is selling likely to issue convertibles? under the fair value of the stock above the fair value of the stock

Answer 1

Answers:a

Features:

• The first feature is considered to be an advantage for the company.
• The next feature is also an advantage for the company.
• The third feature is also an advantage.

Option 1 is the correct answer. Convertibles are issued when the issuing company needs to raise equity financing & feels that the market price of the stock is selling under the fair value of the stock.