Log On America

In this case study, Professors Pierre Hillion and Theo Vermaelen use Log On America’s decision to issue a floating-price convertible preferred stock to discuss optimal capital structure. You are asked to compare this financial innovation with alternatives such as equity financing, debt financing and convertibles with a fixed conversion price. Then you’re asked to support (or undermine) the legal case of LOA against the banks and the preferred shareholders. Finally, you have the opportunity to use option-pricing techniques to value the convertible and experiment with alternative security designs.

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