Attempts 5. Financing with convertibles ust like any financing seaurity, convert

Question

Attempts 5. Financing with convertibles ust like any financing seaurity, convertibles have certain advantages and disadvantages. Based on your understanding of using convertibles for financing, identify whether each of the features listed in the Average: 14 Ae Aa following table is an advantage or a disadvantage from an issuer's standpoint: Feature Advantage Disadvantage when investors exercise convertibles, the company loses the cost benefit on debt that it had when it issued the convertible security Convertibles help companies sell bonds at low interestO rabes. Compenies can sell common stock at a price higher than C the current stock price using convertibles Considering the pros and cons of convertible secunties, under which of the following two situetions is a company likely to issue convertibles? O When issuing new stock could have a pesitive signaling effect on investors O when issuing new stock could have a negative signaling effect on investors

Explanation / Answer

Feature Advantage Disadvantage When investors exercise……………… Yes Convertibles……………….. Yes Companies can sell common stock Yes Considering the pros and cons…….likely to issue convertibles? *when issuing new stock could have a negative signaling effect on invesors.

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