Suppose you were offered the opportunity to buy convertible preferred shares or participating preferred shares of...

Suppose you were offered the opportunity to buy convertible preferred shares or participating preferred shares of the same company for the same price. Which would you take? Explain why.

Solutions

Expert Solution

Convertible prefernce shares gives the holder the right to convert the preferred shares into common stock at a fixed price.If the market value of the common stock increases its beneficial to the holder of convertible preferred stock as he can convert the preference shares into common stock.

In case of participatory preferred shares the issuing company provides an additional dividend benefit on top of the fixed dividend rate the holder of the preferred share is entitled to.This however happens only if the company is able to achieve the specific financial goals set by themselves.If the company does so the holders of participatory peferred stock would benefit from additional dividend.

It is actually a trade off between the ability to convert at a fixed rate and the oppurtunity to receive additional benefit dependent on firm's performance.My personal preference would be convertible preferred share as they give the chance to convert to common stock at a fixed rate if share price appreciation occurs rather than being dependent on the company's ability to meet the specific financial goals that would provide additional dividend to the holder.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

1. Explain the use of Common Stock, Preferred stock, Convertible Preferred Stock and Participating Preferred Stock...

1. Explain the use of Common Stock, Preferred stock, Convertible Preferred Stock and Participating Preferred Stock in a VC/Start-up financing setting. Describe the advantages and disadvantages of each type of contract by VCs. 2. Banking Questions (1) Explain the differences between Commercial and Investment banking. (2) Describe some of the ways in which banks are regulated. Explain why banks are heavily regulated (3) Describe the role that these institutions play in the economy.

Suppose you are offered the opportunity to get on the bandwagon of the collector craze for...

Suppose you are offered the opportunity to get on the bandwagon of the collector craze for Beanie Babies. In exchange for $1,000 you will receive 100 assorted canine Beanie Babies. You are absolutely positive that the complete vintage collection will double in value after a decade. The opportunity cost of funds is represented by a 10% interest rate. what is the NPV and IRR? Show equations and work.

Suppose you were asked to give a presentation to a group of parents-to-be who are participating...

Suppose you were asked to give a presentation to a group of parents-to-be who are participating in a prepared-childbirth class. Your topic is “effective parenting” or, put another way, “how to raise an energetic, friendly, cooperative, independent, self-reliant child.” Based on the material presented on various styles of parenting and child behaviour outcomes, what points would you stress to these parents-to-be? Provide a rationale for each of your choices.

Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 16,800 shares of common stock outstanding...

Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 16,800 shares of common stock outstanding at the beginning of 2019. Francis issued 2,100 additional shares on May 1 and 1,400 additional shares on September 30. It also has two convertible securities outstanding at the end of 2019. These are: Convertible preferred stock: 1,750 shares of 8.0%, $50 par, preferred stock were issued on January 2, 2016, for $55 per share. Each share of preferred stock is convertible into 2...

Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 31,200 shares of common stock outstanding...

Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 31,200 shares of common stock outstanding at the beginning of 2016. Francis issued 3,900 additional shares on May 1 and 2,600 additional shares on September 30. It also has two convertible securities outstanding at the end of 2016. These are: Convertible preferred stock: 3,250 shares of 9.0%, $50 par, preferred stock were issued on January 2, 2013, for $60 per share. Each share of preferred stock is convertible into 3...

You were offered the opportunity to purchase either a simple interest note or a simple discount...

You were offered the opportunity to purchase either a simple interest note or a simple discount note with the following terms: $37,172 at 10% for 6 months. a. Calculate the effective interest rate. (Do not round intermediate calculations. Round your final answer to the nearest tenth percent.) Effective interest rate % b. Based on the effective interest rate, which would you choose? simple interest note simple discount note

You were offered the opportunity to purchase either a simple interest note or a simple discount...

You were offered the opportunity to purchase either a simple interest note or a simple discount note with the following terms: $38,485 at 7% for 36 months. a. Calculate the effective interest rate

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000...

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 6% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.60 per share on the common stock and $1.50 per share on the preferred stock. Each $1,000 bond is convertible into 40 shares of common stock. The net income for 2015 was $400,000 and the income tax rate was 30%....

Coronado Industries had 202000 shares of common stock, 19300 shares of convertible preferred stock, and $596000...

Coronado Industries had 202000 shares of common stock, 19300 shares of convertible preferred stock, and $596000 of 9% convertible bonds outstanding during 2021. The preferred stock is convertible into 39700 shares of common stock. During 2021, Coronado paid dividends of $0.55 per share on the common stock and $1.70 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2021 was $350000 and the income tax rate was 35%....

QUESTION 3 Shareholders of convertible preferred stock generally have the: A. Obligation to convert their shares...

QUESTION 3 Shareholders of convertible preferred stock generally have the: A. Obligation to convert their shares into callable shares of common stock. B. Right to convert their shares into shares of common stock. C. Right to convert their shares into bonds with an equivalent yield-to-maturity. D. Obligation to convert their shares into shares of common stock. E. Right to convert their shares into cash at par value at their discretion. QUESTION 4 Which type of bond allows the issuer to...

Subjects