Convertible preferred dividend $2.10
Common stock $42.00
Conversion 1.00
Coversion premium 10%
Conversion price with 10% premium $46.20.
Conversion price 30%
Conversion price with 30% is $54.60.
a. If the company expects its growth rate to be high, would it be better to use a premium of 10% or a 30%? Why?
b. If the company expects its growth rate to be low, would it be better to use a premium of 10% or a 30%? Why?