Question

If a company wanted to finance the purchase of equipment without diluting shareholders equity, which of the following operation could it consider?

A. Purchasing the equipment with preferred shares
B. Issuing convertible bonds
C. Obtaining a loan from a bank
D. Selling treasury shares

Answer 1

Answer:

C) issuing convertible bonds

Answer 2

If a company wanted to finance the purchase of equipment without diluting shareholders equity, the operation that it could consider is b. Issuing convertible bonds.

• Convertible bonds are corporate bonds that can be exchanged for common stock in the issuing company.
• Companies issue convertible bonds to lower the coupon rate on debt and to delay dilution.
• Companies can force conversion of the bonds if the stock price is higher than if the bond were to be redeemed.