This in turn could result in the dilution of existing

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Unformatted text preview: shares would have to be issued because of their low market price. This, in turn, could result in the dilution of existing ownership. Another means of financing the call would be the use of debt or preferred stock, but this use would leave the firm’s capital structure no less levered than before the call. Determining the Value of a Convertible Bond The key characteristic of convertible securities that enhances their marketability is their ability to minimize the possibility of a loss while providing a possibility of capital gains. Here we discuss the three values of a convertible bond: (1) the straight bond value, (2) the conversion value, and (3) the market value. 688 PART 6 Special Topics in Managerial Finance Straight Bond Value straight bond value The price at which a convertible bond would sell in the market without the conversion feature. EXAMPLE The straight bond value of a convertible bond is the price at which it would sell in the market without the conversion feature. This value is found by determining the value of a nonconvertible bo...
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This document was uploaded on 01/19/2014.

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