The Financial Times and the Wall Street Journal carried a legal notice entitled “The Thomas Regout Company has called for the redemption of all of its €3.50 Convertible Preferred Stock.” According to the notice Thomas Regout, a Dutch company, had decided to exercise the redemption feature on its outstanding preferred stock and to redeem all of the outstanding shares at a price of €52.45 per share plus accrued dividends of €0.16 per share, for a total of 52.61, on August 31. The Thomas Regout preferred stock also carried a conversion feature that would permit the owner to convert the preferred stock into 1.9608 shares of common stock (par value of €1). The market price of the common stock on August 13 was €32.625 per share. The legal notice of redemption emphasized that the conversion feature of the preferred stock expired on August 27.

Required

1. Assume that Thomas Regout has | million shares of preferred stock outstanding and that its par value is €5. How would the company account for (1) the redemption of all of the preferred shares and (2) the conversion of all of the preferred shares?

2. If you held 100 shares of Thomas Regout preferred stock, which alternative (conversion or redemption) would you choose, and why?

3. If you were the CEO of Thomas Regout, which alternative (conversion or redemption) would you prefer, and why?