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1.Describe the current economic and financial cond...

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1.Describe the current economic and financial condition we are facing today. How will the current economic and financial condition impact the future growth of the businesses? If you were raising funds from outside (today) to support the growth of a company, why would you use warrants in debt financing. Explain how your financing strategy will increase the wealth of the stockholders. 2.What is bankruptcy? What is the difference between liquidation and reorganization? What is the main benefit of reorganization. 3.What is a merger? How does a merger differ from other forms of acquisition. 4.Explain how differing inflation rates between two countries affect their exchange rates over the long-term. 5. AAA Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent. If the company purchases the equipment for $1,000,000, it will depreciate it over 5 years, using straight-line depreciation. If the company enters into a 5-year lease, the lease payment is $210,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 10 percent. a. Calculate the cost of purchasing the equipment. 6. BBB Corporation issued bonds with detachable warrants several years ago. Each warrant allows the holder to purchase one share of stock at $30 per share. The stock has a beta of 1.6. a Calculate the exercise value of the warrants if the price of the underlying stock is $40. b. How much would an investor likely be willing to pay for the warrant over and above its exercise value ? Why? c. Would the investor likely be willing to pay more or less for the warrant if the stock had a beta of 1.0? Why? 7.The CCC Corporation plans to issue $10,000,000 of 20-year bonds next June. The company's current cost of debt is 12 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. The following settle data are available for t-bond futures. Delivery Month Settle (1) (5) Dec 99-17 Mar 98-01 June 97-12 a. Calculate the current value of the futures position. b. Calculate the implied interest rate based on the current value of the futures position. 8. DDD is being liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is shown below. Fixed assets are sold for $25,000,000 and current assets are sold for $18,000,000. All fixed assets are pledged as collateral for mortgage bonds. Subordinated debentures are subordinate only to notes payable. Trustee costs are $500,000. No employee is owed over $2,000. Before Before Default Balance Sheet Default Current Assets 26,000,000 Accounts payable 4,000,000 Net fixed assets 50,000,000 Accrued taxes 90,000 Accrued wages 250,000 Notes payable 1,650,000 Total current liabilities 5,990,000 First-mortgage bonds 18,000,000 Second-mortgage bonds 20,000,000 Debentures 15,000,000 Subordinated debentures 14,000,000 Common stock 2,500,000 Retained earnings 510,000 Total assets 76,000,000 Total claims 76,000,000 a. How much will SHs receive? b. How much will mortgage bondholders receive? c. How much will priority creditors receive? 9. Shown below are exchange rates for several currencies. The rates are shown as indirect rates from the standpoint of a U.S. company. Euro Swiss Franc Mexican Peso Spot rate 0.90 1.70 11.00 30-day forward rate 0.92 1.80 10.95 60-day forward rate 0.93 1.85 10.70 a. Is the euro appreciating or depreciating against the U.S. dollar? Why? b. Is the Swiss franc appreciating or depreciating against the U.S. dollar? Why? c. Is the Mexican peso appreciating or depreciating against the U.S. dollar? Why?

 

Paper#6577 | Written in 18-Jul-2015

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