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Hi sir,
I have trouble understanding the answer in Q2 a ” once conversion occurred, the debt capacity of the company would increase …use equity finance, the interest cover would increase.”If there is more equity (which there will be if the debt is converted to shares), then the business will be able to borrow more debt.
If they issue more equity and increase their earnings (without increasing the debt, and therefore not needing to pay more interest) then the interest cover (earnings before interest / interest) will be higher.
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