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A $1,000 bond is issued at par. The market price of the common stock at the issue date was $20. The conversion price is $25. (a) What is the conversion ratio? (b) What is the conversion value? (c) W
Differentiate between Risk in a portfolio context. How are they measured, and are both concepts relevant for investors?
A $1,000 convertible bond permits the holder to convert the bond into five shares of common stock (a) What is the conversion ratio? (b) What is the conversion price?
The conversion price of common stock is $20 a share. Into how many shares will a $1,000 convertible bond be converted?
Dewyco has preferred stock trading at $50 per share. The next preferred dividend of $4 is due in one year. What is Dewyco's cost of capital for preferred stock?
What are the portfolio weights for a portfolio that has 100 shares of Stock A that sell for $40 per share and 130 shares of Stock B that sell for $22 per share?
A warrant for Ace Corporation stock enables the holder to purchase one share of common stock at $30 a share. The stock has a market price of $47 a share. What is the value of the warrant?
CoffeeCarts has a cost of equity of 15%, has an effective cost of debt of 4%, and is financed 70% with equity and 30% with debt. What is this firm's WACC?
Morgan Corporation must obtain $8 million in financing for its expansion plans. The firm's credit rating is good. Common stock is now selling at $50 per share. Preferred stock has a dividend rate of
Bond Returns What is the historical real return on long-term government bonds on long-term corporate bonds?
A stock has had returns of 36 percent, 19 percent, 27 percent, -7 percent, 6 percent, and 13 percent over the last six years. What are the arithmetic returns for the stock?
What is meant by an internal capital market? When would you expect such a market to add value? When and why would it be expected to misallocate capital?
Sunder Corporation wants to acquire another company but is unsure of the best basis to finance the purchase. The company's financial leverage is about the same as the industry average.
What are horizontal, vertical congeneric, and conglomerate mergers? Are the different types of mergers equally likely to pass muster with the Justice Department?
Midas Corporation wants to build a new facility that will produce a new product line. The company expects the following costs to arise:
A new company plans to obtain $18 million financing. The company expects to obtain a yearly income of $2 million before interest and taxes. The firm is considering issuing bonds or an equal amount
Krul Corporation is an established company in its industry. It has a limited ownership. The trend in revenue and earnings has shown variability.
Blake Corporation has $20 million in sales a year. It requires $3.5 million in financing for capital expansion. The debt/equity ratio is 70 percent
Mason Corporation is considering the issuance of either debt or preferred stock to finance the purchase of a facility costing $1.5 million. The interest rate on the debt is 16 percent.
Explain the distinction between a tax-free and a taxable merger. Are there circumstances in which you would expect buyer and seller to agree to a taxable merger?
Charles Corporation stock sells at $78 a share with rights on. The subscription price is $60, and five rights are needed to purchase a new share of stock. What is the value of each right?
Explain how you would estimate the gain and cost of a merger financed by stock. What stock price should be used to calculate the cost?
Wilson Corporation anticipates a 10 percent growth in net income and dividends. Next year, the company expects earnings per share of $5 and dividends per share of $3. Wilson will be having its first
Explain how the market multiples method is used to determine the value of a target firm to a potential acquirer. Give several examples of this procedure.
The expected additional earnings due to the new facility is $2 million. The expected stockholder rate of return is 16 percent per annum. What is the total market value of the company, assuming the f