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Shaw Products Company, whose present balance sheet is summarized here, is considering issuing $100 million of 6 percent subordinated debentures (par value = $1,000), which are convertible into common stock at a price of $40.
a. Show the pro forma balance sheet for the issuance of the convertibles prior to conversion. Assume the proceeds are invested in new plant and equipment, and disregard issuance costs.
b. Show the pro forma balance sheet, assuming conversion of the entire issue.
c. How much additional money will the company raise at the time of conversion?
You are CFO of a large company that has a few subsidiaries. A new board member is unfamiliar with consolidation procedures particularly with respect to the elimination of intercompany inventory transactions. Provide a summary of your talking points w..
Write down the payout of the 70-strike call at states A and B. - find the risk-neutral probability of state A with respect to the money market numeraire.
Haroldson Inc. common stock is selling for $22 per share. The last dividend was $1.20, and dividends are expected to grow at a 6% annual rate. Flotation costs on new stock sales are 5% of the selling price. What is the cost of Haroldson's retained ea..
A $90,000 investment is made. Over a 5-year period, a return of $30,000 occurs at the end of the first year. Each successive year yields a return that is 7% less than the previous year’s return. If money is worth 5%, what is the equivalent present wo..
Assuming a property is purchased for $125 million that has projected Year 1 NOI of $7.5 million, what is the maximum loan if lender requirements include maximum LTV of 60%, minimum DCR of 145%, and 10% interest only Debt Service Payments?
Lance has two adult children from a previous marriage. He has gifted them money for the past three years and his wife has consented to split the gifts each year. Lance made gifts to his children as follows: 2013: Gifts of $60,000 to each child 2014: ..
You will receive a $80,000 inheritance in 10 years. You could invest that money today at 10% compounded semi-annually. What is the present value of your inheritance? (Round to the nearest cent)
Is the return on equity (ROE) affected by the use of financial leverage? Why does this result occur? Should Router choose the capital structure that maximizes its expected ROE? Explain.
Drongo Corporation's 4-year bonds yield 5.95%. The real risk-free rate is 2.29%. The maturity risk premium is estimated to be 0.08%(t-1), where t is equal to the time to maturity. The default and liquidity premiums for Drongo's bonds total 0.66% and ..
Dayman Inc. has asked you to evaluate a proposal to buy a new costume machine. The base price is $110,000, and shipping and installation costs would add another $15,000. The machine falls into the MACRS 3-year class, and it would be sold after anothe..
A bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon and sells for $980. What is its yield to maturity (YTM)? Round your answer to two decimal places.
You are planning your retirement in 10 years. You currently have $162,000 in a bond account and $602,000 in a stock account. You plan to add $7,800 per year at the end of each of the next 10 years to your bond account. How much can you withdraw each ..
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