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a) Good firms b) Firms with higher bankruptcy costs c) Firms with higher than industry avg. debt ratios expecting good times ahead d) all of the above
Option A. Good firms will use convertibles because the firm’s true value will be made known before the debt is due. Thus by issuing convertibles now, with a call provision, the good firms can issue equity by forcing conversion which will allow the firm to raise more debt if they need it in the future.
To me its Option C, because in order to lower its debt to equities ratio.....
d) all of the above
