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
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