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Which of the following statements is most CORRECT...

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Which of the following statements is most CORRECT? a. In a private placement, securities are sold to private (individual) investors rather than to institutions. b. Private placements occur most frequently with stocks, but bonds can also be sold in a private placement. c. Private placements are convenient for issuers, but the convenience is offset by higher flotation costs. d. The SEC requires that all private placements be handled by a registered investment banker. e. Private placements can generally bring in funds faster than is the case with public offerings. Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time? a. The yield to maturity on the company?s outstanding bonds increases due to a weakening of the firm?s financial situation. b. A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates. c. The flotation costs associated with issuing new bonds rise. d. The firm?s CFO believes that interest rates are likely to decline in the future. e. The firm?s CFO believes that corporate tax rates are likely to be increased in the future. Heavy use of off-balance sheet lease financing will tend to a. make a company appear more risky than it actually is because its stated debt ratio will be increased. b. make a company appear less risky than it actually is because its stated debt ratio will appear lower. c. affect a company's cash flows but not its degree of risk. d. have no effect on either cash flows or risk because the cash flows are already reflected in the income statement. e. affect the lessee?s cash flows but only due to tax effects. Which of the following statements is most CORRECT? a. Leveraged buyouts (LBOs) occur when a firm issues equity and uses the proceeds to take a firm public. b. In a typical LBO, bondholders do well but shareholders see their value decline. c. Firms are forbidden by law to sell any assets during the first five years following a leveraged buyout. d. All of the answers above are correct. e. None of the answers above is correct. Corporations that invest surplus funds in floating-rate preferred stock benefit from getting a relatively stable price, which is desirable for liquidity portfolios, and they also benefit from the 70% tax exemption on the preferred dividends received. True False In the lease versus buy decision, leasing is often preferable a. because lease obligations do no affect the firm's risk as seen by its investors. b. because, generally, no down payment is required, and there are no indirect interest costs. c. because the lessee may have greater flexibility in abandoning the project in which the leased property is used than if the lessee bought and owned the asset. d. because it has no effect on the firm's ability to borrow to make other investments. e. because the lessee owns the property at the end of the lease term. Which of the following is generally NOT true and an advantage of going public? a. Facilitates stockholder diversification. b. Increases the liquidity of the firm's stock. c. Makes it easier to obtain new equity capital. d. Establishes a market value for the firm. e. Makes it easier for owner-managers to engage in profitable self-dealings. Which of the following statements is most CORRECT? a. In a private placement, securities are sold to private (individual) investors rather than to institutions. b. Private placements occur most frequently with stocks, but bonds can also be sold in a private placement. c. Private placements are convenient for issuers, but the convenience is offset by higher flotation costs. d. The SEC requires that all private placements be handled by a registered investment banker. e. Private placements can generally bring in funds faster than is the case with public offerings. Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time? a. The yield to maturity on the company?s outstanding bonds increases due to a weakening of the firm?s financial situation. b. A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates. c. The flotation costs associated with issuing new bonds rise. d. The firm?s CFO believes that interest rates are likely to decline in the future. e. The firm?s CFO believes that corporate tax rates are likely to be increased in the future. The City of Charleston issued $3,000,000 of 8% coupon, 30 year, semi annual payment, tax-exempt muni bonds 10 years ago. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 7.50% of the face amount. New 20 year, 6%, semiannual payment, bonds can be sold at par, but flotation costs on this issue would be 1.5% of the amount of bonds sold. What is the net present value of the refunding? Note that cities pay no income taxes, hence taxes are not relevant. Orient Airlines' common stock currently sells for $24 per share, and its 8% convertible debentures (issued at par, or $1,000) sell for $950. Each debenture can be converted into 20 shares of common stock at any time before 2019. What is the conversion value of the bond? Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5 year, $6,000,000 bank loan to finance service equipment. The loan has an interest rate of 10.50% and would be amortized over 5 years, with 5 end-of-year equal payments. Sutton can also lease the equipment for 5 end-of-year payments of $1,825,000 each. How much larger or smaller is the bank loan payment than the lease payment? Note: subtract the loan payment from the lease payment. Valdes Enterprises is considering issuing a 10 year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 9.50%. The stock currently sells for $40.00 a share, has an expected dividend in the coming year of $2.00, and has an expected constant growth rate of 6.00%. What is the estimated floor price of the convertible at the end of Year 3?

 

Paper#6883 | Written in 18-Jul-2015

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