Attempts: 1 1 5. Financing with convertibles Just like any financing security, c

Question

Attempts: 1 1 5. Financing with convertibles 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 Keep the Highest: 1/4 Aa Aa following table is an advantage or a disadvantage from an issuer's standpoint: Feature Advantage Disadvantage O 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 interest rates If a company needs capital and wants to issue nevw 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 likely to issue convertibles? O When lenders are willing to provide financing at low interest rates because they think the funds will be invested in low-risk projects O When lenders are reluctant to provide financing because they think the funds will be invested in risky projects

Explanation / Answer

When investors exercise convertibles, the company loses the cost benefit on debt: Disadvantage

Convertibles help companies sell bonds at low interes rates: Advantage

if a company needs capital and wants to issue new stock: Advantage

When lenders are reluctant to provide financing because they think the funds will be invested in risky projects

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