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8 September, 14:04

A corporation has outstanding $5,000,000 of 9 1/2% 20-year debentures, with a conversion price of $40. If all the debentures were converted, how many shares of common stock would be issued?

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  1. 8 September, 14:52
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    The 125,000 shares of common stock would be issued

    Explanation:

    For computing how many shares of common stock would be issued, we have to use the formula of common share produced which is shown below:

    Common share produced = Par value : Conversion price

    where,

    Par value is $5,000,000

    And, the conversion is $40

    Now, apply these values to the above formula

    So, the value would be equals to

    = $5,000,000 : $40

    = 125,000

    The time period and rate of debentures is irrelevant, Thus, it is ignored.

    Hence, the 125,000 shares of common stock would be issued.
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