1. Bond interest payments before and after taxes.Zylex Corp has issued 2,500 bonds with a total principal value of $2,500,000. The bonds have a coupon rate of 9.25 percent.
a. What dollar amount of interest per bond can an investor expect to receive each year from Zylex Corp?
b. What is Zylex's total interest expense per year associated with this bond issue?
c. Assuming that Zylex is in a 35 percent corporate tax bracket, what is the company's net after-tax interest cost associated with this bond issue?
2. Zero-coupon bond. Assume you bought the bond in the problem above. Four years go by and youwish to sell the bon in the secondary market. If yields in the market for bonds of this risk level are 6.2 percent, how much money will you receive when you sell the bond? If yields were 10.8 percent, how much would you receive?
3. Restricted voting shares. In 1962, Frank Hughes established Hughes Machine Parts in rural Ontario. In 1975, Frank decided to go public and held an IPO. But, for the IPO Frank decided to issue subordinate voting shares, the B share. The B shares were entitled to one vote each. Frank and his family would hold the A shares which were entitled to 200 votes per share. After a number of secondary issues of shares, there were a total of 32,463,412 common shares outstanding; 265,000 of these were Class A shares .
a. Of the total shares issued, what percent are Class B shares?
b. What percent of the votes do the Class B shares hold?
c. What type of share is the Class A? The Class B
d. Based on the above analysis, what possible danger exists for the Class B shareholders? Is there a protection for these shareholders?
4. Dilution of earnings.Goodwood Golfing's earnings available for common shareholders (EAC) for this fiscal year is $6.5 million. Goodwood has 5 million common shares outstanding. The current share price is $24. Good wood is considering issuing 500,000 common shares that will net the company 95 percent of the current share price when all issue costs are considered.
a. Prior to share issue, what isGoodwood's earnings per share (EPS)?
b. Assuming Goodwood issues the share this fiscal year, what is the immediate dilution of the new share issue?
c. Assume tha the proceeds from the share issue are invested and provide a 12 percent return that flows to EAC. Is there a dilutive effect of the new share issue?