The key motives for using convertible securities in the firm's financing mix include all of the following EXCEPT
A) a form of deferred stock financing.
B) a sweetener for financing.
C) a method of raising temporarily cheap funds.
D) an eventual shift in the capital structure to a more levered position.

Question

Quizplus · Accepted Answer

Choices A, B, and C are all valid reasons for using convertible securities in a firm's financing mix. However, choice D is an incorrect statement. Convertible securities do not necessarily lead to a more levered capital structure. While conversion to equity can increase the number of outstanding shares, the value of each share can also increase, leading to a more balanced debt-to-equity ratio. Therefore, the correct answer is D.

The Key Motives for Using Convertible Securities in the Firm's