Bond Conversion On December 31, Denic Corporation had $2,000,000 of 9 percent convertible bonds outstanding that will mature in 5 years. The book value of the bonds was $1,990,000 on December 31, and the discount is amortized on a straight-line basis. The bonds were called on December 31, and immediately after the interest payment, the entire issue was converted into 20,000 shares of common stock. Denic’s common stock had paid an annual dividend of

$4 per share for each of the past 5 years. The company’s income tax rate was 30 percent.

a. On an annual basis, by how much will Denic’s net income be different after the bond conversion?

b. By how much will Denic’s debt change as a result of the bond conversion? By how much will Denic’s stockholders’ equity change as a result of the conversion?