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BUSI-320 Corporate Finance-2013 Fall-B (Moten)) homwork 7




Question;MC Qu. 62 Which of the following statements concerning...;Which of the following statements concerning futures markets is false?;Futures markets allow investors to manage risk.;Futures markets can be used to hedge against changing commodity;prices.;Interest rate futures can be used to hedge against the risk of rising;interest rates.;All of the statements above are true.;MC Qu. 63 All of the following are recognized as an...;All of the following are recognized as an important influences in the;development of the banking crisis of 2008 and the resulting credit crisis;EXCEPT;Consumers, especially homeowners, took on too much debt.;Real estate prices collapsed.;Too many subprime loans were repackaged and sold as securities.;The IMF bailed out Freddie Mac and Fannie Mae.;MC Qu. 65 Evidence of how global markets are linked...;Evidence of how global markets are linked was provided in 1997 and 1998;when international markets reacted to;the collapse of Asian currencies in Thailand, Indonesia, Malaysia and;Korea.;Russia's default on its sovereign debt.;Japan's seven years of economic stagnation.;a and b are true.;MC Qu. 68 The European Monetary Union (EMU) which came...;The European Monetary Union (EMU) which came into effect in January of;1999 includes;Britain, France, Germany, Spain, Italy and 6 other European countries.;The establishment of a new European Central Bank to coordinate;monetary policy for the Euro-zone countries.;A new currency called the Euro, which will be put into circulation in;all EMU countries no later than 2009.;All of these.;MC Qu. 70 During the next ten years, the major threat...;During;the next ten years, the major threat to the dominance of the U.S. money and;capital markets will come from;The Euro-zone countries comprising the European Monetary Union and a;single currency.;The huge Chinese economy and its billion plus people.;Russia's difficulty in transforming its economy into a capitalistic;one.;Japan's prolonged recession and banking crisis.;MC Qu. 76 Corporations prefer bonds over preferred...;Corporations prefer bonds over preferred stock for financing their;operations because;preferred stocks require a dividend.;bond interest rates change with the economy while stock dividends;remain constant.;the after-tax cost of debt is less than the cost of preferred stock.;none of these.;MC Qu. 77 In general when interest rates are expected...;In general when interest rates are expected to rise, financial managers;accept more risk.;try to lock in long-term financing at low cost.;rely more on internal sources of funds rather than external sources.;balance the company's debt structure with more short-term debt and;less long-term debt.;MC Qu. 80 The major supplier of funds for investment...;The major supplier of funds for investment in the whole economy is;households.;businesses.;government.;financial institutions.;MC Qu. 92 Security markets are efficient when each of...;Security markets are efficient when each of the following exist except;the markets can absorb large dollar amounts of stock without;destabilizing the price.;security prices follow the leading indicators such as the DJIA very;closely.;prices adjust rapidly to new information.;there is a continuous market where each successive trade is made at a;price close to the previous trade;one of these;MC;require that all securities sold in more than one state be registered;with the SEC.;MC Qu. 101 The Securities Exchange Act of 1934 is...;The Securities Exchange Act of 1934 is primarily concerned with;original issues of securities.;a central market system.;regulation of organized exchanges.;protecting customers of bankrupt securities firms.;Problem 15-3 Dilution effect of stock issue [LO3];American;Health Systems currently has 5,500,000 shares of stock outstanding and will;report earnings of $16 million in the current year. The company is;considering the issuance of 1,800,000 additional shares that will net $40 per;share to the corporation.;Kevin?s;Bacon Company Inc. has earnings of $8 million with 2,100,000 shares;outstanding before a public distribution. Eight hundred thousand shares will;be included in the sale, of which 500,000 are new corporate shares, and;300,000 are shares currently owned by Ann Fry, the founder and CEO. The;300,000 shares that Ann is selling are referred to as a secondary offering;and all proceeds will go to her.;The;net price for the offering will be $24.50 and the corporate proceeds are;expected to produce $1.6 million in corporate earnings.;(a);What;were the corporation?s earnings per share before the offering? (Enter your answer in dollars not in millions. Round;your answer to 2 decimal places. Omit the "$" sign in your;response.);Earnings;per share;$;(b);What;are the corporation?s earnings per share expected to be after the offering? (Enter your answer in dollars not in millions. Round;your answer to 2 decimal places. Omit the "$" sign in your;response.);Earnings;per share;$;19.;award:1 out of;1.00 point;Problem 15-12 Market Stabilization and risk [LO2];Becker;Brothers is the managing underwriter for a 1.5-million-share issue by Jay?s;Hamburger Heaven. Becker Brothers is ?handling? 8 percent of the issue. Its;price is $20 per share and the price to the public is $23.50.;Becker also provides the market stabilization;function. During the issuance, the market for the stock turns soft, and;Becker is forced to purchase 50,000 shares in the open market at an average;price of $22.00. They later sell the shares at an average value of $21.00.;Compute;Becker Brothers? overall gain or loss from managing the issue. (Input the amount as positive value. Enter your answer;in dollars not in millions. Omit the "$" sign in your;response.);Net;gain;20.;award:1 out of;1.00 point;Problem 15-14 Underwriting costs [LO2];Winston;Sporting Goods is considering a public offering of common stock. Its;investment banker has informed the company that the retail price will be;$19.00 per share for 590,000 shares. The company will receive $17.40 per;share and will incur $160,000 in registration, accounting, and printing fees.;(a-1);What is;the spread on this issue in percentage terms? (Round your intermediate calculations and final answer to 2 decimal;places. Omit the " % " sign in your response.);Spread;%;(a-2);What;are the total expenses of the issue as a percentage of total value (at;retail)? (Round your intermediate;calculations and final answer to 2 decimal places. Omit the " %;sign in your response.);Expenditure;percentage;%;(b);If the;firm wanted to net $14.63 million from this issue, how many shares must be;sold?;Shares;21.;award:0 out of;1.00 point;Problem 15-15 P/E ratio for new public issue [LO1];Slightly;above average;Average;Quality;of management;High;Average;Assume;in assessing the inaward:1 out of;1.0;2.00 points;Pr;%;Explanation;(a);=.;=;$65;=;5.65%;$1150;27.;award:1.60 out of;2.00 points;Problem 16-3 Bond yields [LO2];An;investor must choose between two bonds;Bond A;pays $70 annual interest and has a market value of $845. It has 5 years to;maturity.;B;Bond B;(c);A;drawback of current yield is that it does not consider the total life of the;bond. For example, the approximate yield to maturity on Bond A is 11.14;percent. What is the approximate yield to maturity on Bond B? (Round your answer to 2 decimal places. Omit the;%" sign in your response.);Approximate;yield to maturity;%;(d);Has;your answer changed between parts b and c of;this question in terms of which bond to select?;No;rev: 01_11_2013;28.;award:1 out of;1.00 point;Problem 16-5 Secured vs. unsecured debt [LO1];Match;the security provisions with the yield to maturity.;(1);(2);Security;provision;Yield to maturity;(a);Debenture;9.20 %;(b);Secured debt;11.50 %;(c);Subordinate debenture;10.20 %;(a);Debenture;(b);Secured debt;(c);Subordinate debenture;(c);PV;of inflows;$;1,266,164;PV;of outflows;1,621,116;Net;present value;$;-354,952;(d);Do not;refund the old issue (particularly if it is perceived that interest rates;will go down even more).;37.;award:0 out of;1.00 point;Problem 16-19 Call premium [LO3];The;Robinson Corporation has $46 million of bonds outstanding that were issued at;a coupon rate of 8 3/4 percent seven years ago. Interest rates have fallen to;7 3/4 percent. Mr. Brooks, the vice-president of finance, does not expect;rates to fall any further. The bonds have 16 years left to maturity, and Mr.;Brooks would like to refund the bonds with a new issue of equal amount also;having 16 years to maturity. The Robinson Corporation has a tax rate of 30;percent. The underwriting cost on the old issue was 2.7 percent of the total;bond value. The underwriting cost on the new issue will be 2 percent of the;total bond value. The original bond indenture contained a five-year;protection against a call, with a 8.5 percent call premium starting in the;sixth year and scheduled to decline by one-half percent each year thereafter.;(Consider the bond to be 7 years old for purposes of computing the premium).;Assume the discount rate is equal to the aftertax cost of new debt rounded to;the nearest whole number.;What;would be the aftertax cost of the call premium at the end of year 11 (in;dollar value)? (Omit the "$" sign;in your response.);Aftertax;cost of the call premium;$;Explanation;The;Robinson Corporation Call premium (aftertax cost);7 years;of 1/2% deductions (5th through 11th year) =;2 1/2%;8 1/2;%;Call;premium;?2 1/2;%;6;%;Call;premium at the end of the 11th year;$;46,000,000 ? 6% = $ 2,760,000;$;2,760,000 (1 ?.30) = $ 1,932,000;38.;award:2 out of;2.00 points;Problem 16-20 Capital lease or operating lease [LO4];The;Deluxe Corporation has just signed a 192-month lease on an asset with a;21-year life. The minimum lease payments are $1,500 per month ($18,000 per;year) and are to be discounted back to the present at a 11 percent annual;discount rate. The estimated fair value of the property is $175,000.;Use Appendix D.;(a);Calculate;the lease period as a percentage to the estimated life of the leased;property. (Round your answer to the nearest;whole percent. Omit the "%" sign in your response.);Lease;period;%;(b);Calculate;the present value of lease payments as a percentage to the fair value of the;property. (Round "PV Factor" to 3;decimal places. Round your intermediate and final answer to 1 decimal;place. Omit the "%" sign in your response.);Present;value of lease payments;%;(c);Should;the lease be recorded as a capital lease or an operating lease?;Capital;lease;39.;award:3 out of;3.00 points;Problem 16-21 Balance sheet effect of leases [LO4];The;Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13;it merely footnoted lease obligations in the balance sheet, which appeared as;follows: Use Appendix D.;In $ millions;In $ millions;Current;assets;$;65;Current;liabilities;$;20;Fixed;assets;65;Long-term;liabilities;35;Total;liabilities;$;55;Stockholders;equity;75;Total;assets;$;130;Total;liabilities and;stockholders' equity;$;130;The;footnotes stated that the company had $23 million in annual capital lease;obligations for the next 10 years.;(a);Discount;these annual lease obligations back to the present at a 12 percent discount;rate. (Enter your answers in millions rounded;to nearest whole number. Round "PV Factor" to 3 decimal;places. Omit the "$" sign in your response.);Annual;lease obligations;$ million;(b);Construct;a revised balance sheet that includes lease obligations. (Enter your answers in millions rounded to nearest whole;number. Round "PV Factor" to 3 decimal places. Omit the;$" sign in your response.);Balance Sheet (in millions);Current;assets;$5;Current;liabilities;$;Fixed;assets;Long-term;liabilities;Leased;property;under capital lease;Obligations;under;capital lease;Total;liabilities;Stockholders;equity;Total;assets;$;Total;liabilities and;Stockholders' equity;$;(c);Compute;total debt to total assets on the original and revised balance sheets. (Round your answer to 1 decimal place. Omit the;%" sign in your response.);Original;%;Revised;%;(d);Compute;total debt to equity on the original and revised balance sheets. (Round your answer to 1 decimal place. Omit the;%" sign in your response.);Original;7 %;Revised;%;rev: 07-25-2011;0.;award:2 out of;2.00 points;Problem 16-22 Determining size of lease payments [LO4];The;Hardaway Corporation plans to lease a $870,000 asset to the O?Neil;Corporation. The lease will be for 10 years. Use Appendix D.;(a);If the;Hardaway Corporation desires a 9 percent return on its investment, how much;should the lease payments be? (Round "PV;Factor" to 3 decimal places. Round your answer to the nearest dollar;amount. Omit the "$" sign in your response.);Lease;payment;$6;(b);The;Hardaway Corporation is able to take a 10 percent deduction from the purchase;price of $870,000 and will pass the benefits along to the O?Neil Corporation;in the form of lower lease payments, (related to the Hardaway Corporation in;the form of lower initial net cost), how much should the revised lease;payments be? The Hardaway Corporation desires a 9 percent return on the;10-year lease. (Round "PV Factor;to 3 decimal places. Round your answer to the nearest dollar amount. Omit the;$" sign in your response.);Revised;lease payment;$ 122,001


Paper#51358 | Written in 18-Jul-2015

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