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Taylor Corporation wants to raise $20 million. Its...

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Taylor Corporation wants to raise $20 million. Its stock price is now $20 per share. The new issue will be priced at $18 per share. The underwriters' compensation will be 5 percent of the issue price. The firm will also incur expenses of $200,000. a. How many shares of stock must be sold for the company to net $20 million after costs and expenses? b. The out-of-pocket expenses incurred by the investment banker were $300,000. What profit or loss would the investment banker realize? c. Explain the terms "best efforts basis" and "underwriting" as they are used in investment banking. d. What is the most important single reason for a firm to go public. e. What is the most important single reason for a firm NOT to go public. The Aleander Company plans to issue $20,000,000 of 20-year bonds next June, with semiannual interest payments. The company's current cost of debt is 10 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government t-bond futures. See the settle data below for t-bond futures. Delivery Month Settle (1) (5) Dec 102-17 Mar 101-01 June 100-12 a. Calculate the present value of the corporate bonds if rates increase by 2 percentage points. b. Calculate the gain or loss on the corporate bond position. c. Calculate the current value of the futures position. d. Calculate the implied interest rate based on the current value of the futures position e. Interest rates increase as expected, by 2 percentage points. Calculate the present value of the futures position based on the rate calculated above plus the 2 points. f. Calculate the gain or loss on the futures position. g. Calculate the overall net gain or loss. h. Is this problem an example of a perfect hedge or a cross hedge? Is it an example of speculation or hedging? Why? How might Wal-Mart (or another large retailer) take advantage of each of the following: Do not merely provide a definition. Provide a specific example of each a. Flexibility option b. Growth option c. Investment timing option d. Abandonment option e. Decision-tree analysis

 

Paper#10131 | Written in 18-Jul-2015

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