请教个level 1的题目 company, currently, interest, next

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7. A company currently has a debt-to-equity ratio of 1.25.  Common shareholder’s equity is $4,000,000, consisting of 1.5 million shares outstanding with a current price of $28/share.  Part of the company’s debt currently outstanding is $1,000,000 of convertible bonds.  
Each $1,000 par value bond can be converted into 50 common shares at any time during the next three years.  The coupon rate on the bonds is 6 percent with interest paid annually.  If all convertible bonds are converted, the company’s debt-capital ratio is
closest to:
A. 42.5%.
B. 44.4%.
C. 80.0%.

ANSWER: B

Under U.S. GAAP, if the bonds are converted, liabilities are decreased by the book value of the bonds, and the equity is increased by the same amount.
Debt/Equity = 1.25; Equity = $4,000,000
Debt = 1.25 x $4,000,000 = $5,000,000
Shares issued on conversion: $1,000,000/$1,000/bond x 50 shares/bond = 50,000 shares
Equity Issued: $1,000,000
Debt Reduction: $1,000,000 resulting in $4,000,000 outstanding
New Debt/Capital ratio: Debt/(Debt + Equity) = $4,000,000/($4,000,000+$5,000,000) = 44.4%

这个5，000，000是怎么来的?是直接把equity的$1m加上去么？为什么不考虑市场价呢？谢谢。

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回复 2# taraqueen


   谢谢ls!