mathxl.com Assignments Take a Test Claudia Torres FINA3313 Fall 2017 (1) Claudia
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mathxl.com Assignments Take a Test Claudia Torres FINA3313 Fall 2017 (1) Claudia Torres | 12/14/17 11:54 PM Quiz: Practice Questions Chapter 7 (Module 3: Stock Valuation) Submit Quiz This Question: 1 pt 8 of 17 (5 complete) This Quiz: 17 pts possible Question Help Convertible preferred stock Valerian Corp. convertible preferred stock has a fixed conversion ratio of 8 common shares per 1 share of preferred stock. The preferred stock pays a dividend of $10.00 per share per year. The common stock currently sells for $20 per share and pays a dividend of $0.50 per share per year a. Judging on the basis of the conversion ratio and the price of the common shares, what is the current conversion value of each preferred share? b. If the preferred shares are selling at S155 each, should an investor convert the preferred shares to common shares? c. What factors might cause an investor not to convert from preferred to common stock? a. The current conversion value of each preferred share is (Round to the nearest dollar.) b. If the preferred shares are selling at S155 each, should an investor convert the preferred shares to common shares? (Select the best answer below.) No 65 c. What is one factor that might cause an investor not to convert from preferred to common stock? (Select the best answer below.) OA. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are less than what they would receive on the preferred stock O B. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are greater than what they would receive on the preferred stock. ° C. An investor might not convert from preferred to common stock if the dividends they will receve on the common stock are equal to what they would receive on the preferred stock. Click to select your answer(s).Explanation / Answer
a)Current conversion value of each preferred share=$20×8=$160.
b)If the preferred shares are selling at $155,investor should convert preferred shares to common stock .
c)A) An investor might not convert the preferred stock to common stock if the dividend they will receive on the common stock is less than that on the preferred stock.
Thank you.
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