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What are the cash outflows associated with bond refunding?

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The cash outflows can include ...

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Calculate DCL. A) 2.08 B) 1.95 C) 1.12 D) 1.67 Calculate DCL.


A) 2.08
B) 1.95
C) 1.12
D) 1.67

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Advantages of equity financing include:


A) no requisite fixed payments.
B) potential dilution of earnings.
C) lower issuance cost than debt financing.
D) potential positive signaling effects.

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Given fixed costs of $200,000, variable costs of $6.00 per unit, and a sales price per unit of $7.00, calculate the break-even point in units.


A) 33,333
B) 200,000
C) 15,385
D) 28,571

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Security issuance is an extremely lucrative opportunity for investment banking firms. Why do these firms typically form syndicates and share the earnings?

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Syndicates are forme...

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A legal document that gives the provisions of a bond issue is called:


A) a covenant.
B) a term-loan agreement.
C) an indenture
D) a debenture.

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Cash dividends on preferred stock:


A) are generally fixed.
B) are paid after common stock dividends.
C) are personally tax exempt.
D) fluctuate with earnings.

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A disclosure document made available to a potential investor in a new security is called:


A) an indenture.
B) a prospectus.
C) a contractual investment proposal.
D) an IPO.

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The exercise value of a warrant is zero if:


A) the common stock price is below the exercise price.
B) the common stock price is equal to the exercise price.
C) the common stock price is at or above the exercise price.
D) the common stock price is at or below the exercise price.

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The sales break-even point is defined as:


A) the level of sales that a firm must reach to cover operating costs.
B) the level of income that a firm must reach to cover variable costs.
C) the point where operating income equals fixed costs.
D) the level of sales that a firm must reach to cover fixed costs.

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The current market price of an ex-rights stock is $89.00. The subscription price is $81.00. The number of rights required to purchase one new share is 8. What is the approximate market price is one right?


A) $0.88
B) $1.13
C) $1.00
D) $1.25

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What is the difference between DOL and DFL?

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DOL measures the operating leverage of t...

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Your firm has a DOL of 1.25 and an EBIT of $500,000. If sales increase by 10%, calculate the percent change in EBIT.


A) 12%
B) 1.25%
C) 0.125%
D) 12.5%

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To value a stock initially going public, which of the following processes would not be an effective pricing tool?


A) liquidity value approach
B) IPO approach
C) calculate NPV of cash flows
D) book value approach

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You own shares in a company that has just announced a rights issue. In a strictly financial sense, why must you either exercise the rights or sell them? Assume the price of the stock does not change after the record date.

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When the stock goes ex-rights it will dr...

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Operating leverage has the effect of triggering:


A) a larger percentage change in EBIT when a given percentage change in sales occurs.
B) a smaller given percentage change in EBIT when a smaller percentage change in sales occurs.
C) a smaller percentage change in EBIT when a given percentage change in sales occurs.
D) a smaller given percentage change in EBIT when a larger percentage change in sales occurs.

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You currently have $20,000,000 bonds outstanding with a 10% coupon. They have 16 years to maturity. You are considering a refunding. Current yields are 8.5%. A new issue would also have 16 years to maturity. Underwriting costs would be $750,000 and there would be a 10% call premium. Your tax rate is 40%. Should you call the bonds and refund?

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Discount rate for the problem = .085(1-....

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How do you value a stock that is not publicly traded?

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Methods used to estimate the market valu...

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The financial risk of a firm:


A) compounds the effect of business risk and intensifies volatility of net income.
B) depends on its business risk.
C) lowers the effect of business risk and intensifies volatility of EBIT.
D) decreases the effect of business risk and intensifies volatility of net income.

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Company XYZ has 30 million shares of common stock outstanding. It wishes to issue another 1,500,000 shares. The current market price per share is $25 and the rights offering subscription price is $20 per share. a. How many rights will current stockholders receive? b. How many rights are needed to buy one additional share? c. What is the value of a right if the stock is trading: rights-on versus ex-rights?

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a. 30 million
b. 30,...

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