Time remaining:
finance question on stocks

Business & Finance
Tutor: None Selected Time limit: 0 Hours

assume Investors own 25% of a company and paid $1M for it and the company is sold for $6M.

If Investors bought Convertible Preferred Stock, their proceeds were?????

Apr 28th, 2015

Generally convertible preferred stocks are issued at a price higher than that of common shares. Over the period of time as price of common shares moves up and becomes more than that of convertible preferred shares, investors converts their preferred shares into common shares. 

Assume the total number of shares of a company is 100

So investors bought 25 shares (25% of 100) for $ 1 M which gives the per share price as $ 40,000 ($1M / 25)

At this point the market cap of the company is $ 4 M ($40,000 X 100)

When the company is sold for $ 6 M, per share price becomes $ 60,000 ($6 M / 100)

Thus the value of 25 shares becomes $ 1.5 M ($ 60,000 X 25)

Hence the proceeds for investors is $ 1.5 M

Apr 30th, 2015

Are you studying on the go? Check out our FREE app and post questions on the fly!
Download on the
App Store
...
Apr 28th, 2015
...
Apr 28th, 2015
Dec 3rd, 2016
check_circle
Mark as Final Answer
check_circle
Unmark as Final Answer
check_circle
Final Answer

Secure Information

Content will be erased after question is completed.

check_circle
Final Answer