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Problem - MacKenzie Corporation currently has 11 million shares of stock outstanding at a price of $37 per share. The company would like to raise money and has announced a rights issue. Every existing shareholder will be sent one right per share of stock that he or she owns. The company plans to require five rights to purchase one share at a price of $37 per share.
a. Assuming the rights issue is successful, how much money will it raise?
b. What will the share price be after the rights issue? (Assume perfect capital markets.)
Suppose instead that the firm changes the plan so that each right gives the holder the right to purchase one share at $8 per share.
c. How much money will the new plan raise?
d. What will the share price be after the rights issue?
e. Which plan is better for the firm's shareholders? Which is more likely to raise the full amount of capital?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
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