Jabari Inc. is an all-equity firm with 60,000 shares outstanding. On 1 May 2014, Jabari issued 20,000 five-year PERCS (Preferred Exchangeable Redemption Cumulative Securities). PERCS are a form of preferred equity.
They pay a fixed dividend and have priority higher than common stock. At the end of the five-year period, the PERCS convert into common equity.
Unlike a convertible bond, this conversion is not an option for the equityholders-it always occurs. The number of shares each PERCS converts into is a function of the common stock price on that day. The number of shares each PERCS issued by Jabari converts into is:
min ( 1 , 100 / p common stock )
Draw the total gross payoff diagram to the old equityholders as a function of firm assets, as of 1 May, 2019. Label the diagram clearly and thoroughly, detailing any necessary calculations.
When answering this question, state any additional assumptions you may need to make.