1. We are evaluating issuance costs from underwritten issues, rights issues with standby underwriting, and a pure rights issuesand found that most of the issues are underwritten, which was the most expensive method. This is done because:
A. investment bankers know more than CFOs and they may buy the issue at an agreed upon price and disburse the funds sooner.
B. investment bankers can increase the price received by increasing confidence in the issue, and they will buy the issue at an agreed upon price and disburse the cash sooner.
C. investment bankers provide other services including price counseling, increasing public confidence, and providing funds to the issuer sooner.
D. investment bankers know how to price the issue, and would not need to set as low as a price as the subscription price and provide price counseling.
E. None of the above.
2. A firm has a sales of $1.2 million, a profit margin of 5%, and a dividend payout ratio of 25%. How much will be added to retained earning next year if sales increase by 6%? (SHOW ALL WORK)
A. $21,600 B. $42,000 C. $15,900 D. $47,700