The following benefits occur to the corporation after forced conversion of a convertible bond except
A) Lower times interest earned
B) Lower debt to asset ratio
C) Higher earnings after taxes
D) All of these are benefits

Question

Quizplus · Accepted Answer

Forced conversion of a convertible bond will result in the conversion of the bond into equity, which would increase the corporation's equity and decrease its debt. This would result in a lower debt to asset ratio and potentially increase earnings after taxes due to the interest expense being eliminated. However, lower times interest earned is not a benefit as it indicates a higher financial risk for the corporation.

The Following Benefits Occur to the Corporation After Forced Conversion