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You are the president and chief executive officer of a family owned manufacturing firm with assets of $45 million. The company articles of incorporation and state law place no restrictions on the sale stock to outsiders. An unexpected opportunity to expand arises that will require an additional investment of $ 14 million. A commitment must be made quickly if this opportunity is to be taken. Existing stockholders are not in a position to provide the additional investment. You wish to maintain family control of the firm regardless of which form of financing you might undertake. As a first step, you decide to contact an investment banking firm.
a) What considerations might be important in the selection of an investment banking firm?b) A member of your board has asked if you have considered competitive bids for the distribution of your securities compared to a negotiated contract with a particular firm. What factors are involved in this decision?c) Assuming that you have decided upon a negotiated contract, what are the first questions that you would ask of the firm chosen to represent you?d) As the investment banker, what would be your first actions before offering advice?e) Assuming the investment banking firm is willing to distribute your securities, describe the alternative plans that might be included in a contract with the banking firm.f) How does the investment banking firm establish a selling strategy?g) How might the investment banking firm protect itself against a drop in the price of the security during the selling process?h) What follow-up services will be provided by the banking firm following a successful distribution of the securities?i) Three years later, as an individual investor, you decide to add your own holding of the security but only at a price that you consider appropriate. What form of order might you place with your broker?
Suppose you receive a $100,000 inheritance in 20 years. You can invest that money today at 6 percent compounded annually. Determine the present value of your inheritance?
Given the following information, calculate the theoretical intrinsic value of the Call option using the Black Scholes Model. IF the market price for the Call option = $11, should the investor buy?
An issue of common stocks most recent dividend is 1.75 Its growth rate is 5.7 percent What is its price if the market's rate of return is 7.7 percent?
What would the weights used in the calculations of Accessory WACC for comon stock and preferred stock and bonds, respectively?
The risk free rate is 5.1 percent, investment's beta is 1.4, equity market risk premium is 5.0 percent and the cost of debt is 4.5%?
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The stock's required rate of return is 12 percent and the stock's dividend is expected to grow at the same constant rate forever. What is the expected price of the stock six years from now?
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In trade with government of the oil producing nation. Callaghan Motors' bonds have ten years remaining to maturity.
The bond currently sells for $1,150, and the company's tax rate is 40%. What is the component cost of debt for use in the WACC calculation?
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