A firm requires $5 million in new long-term financing. The firm is trying to decide whether to sell common stock or a convertible bond. The market price of the common stock is currently $65 per share. In order to sell this new issue, the company would have to underprice the stock by $2 and would have to sell it for $63 per share. At present, the firm has 600,000 shares of common stock outstanding. The firm could also issue 20-year, 10 percent, and $1,000 par-value convertible bonds. They would set the conversion price at $73 per share, and the bond could be sold at par. The earnings for the firm should be $4,000,000 in the coming year. If the firm chooses the convertible bond, what will the earnings per share be after all bonds are converted

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: