Determining the total discount or premium for issue


Question 1: The initial proceeds per bond, the size of the issue, the initial maturity of the bond, and the years remaining to maturity are shown in the following table for a number of bonds. In each case, the firm is in the 40 percent tax bracket, and the bond has a $1,000 par value.

Bond    Proceeds per Size of    Initial Maturity    Years Remaining
Bond    Issue    of Bond    to Maturity
A    $985    10,000 bonds    20 Years    15 years
B    1,025   20,000              25             16
C    1,000   22,500              12             9
D    960      5,000               25             15
E    1,035   10,000              30             16

A. Indicate whether each bond was sold at a discount, at a premium, or at its par value.
B. Determine the total discount or premium for each issue.
C. Determine the annual amount of discount or premium amortized for each bond.
D. Calculate the unamortized discount or premium for each bond.
E. Determine the after-tax cash flow from the unamortized discount associated with the retirement now of each of these bonds, using the values developed in part (d).

Dividend Fundamentals

Question 2: Beta Corporation has the following shareholders' equity accounts:

Common Stock at par              $5,000,000
Paid-in capital in excess of par    2,000,000
Retained earnings                    25,000,000
Total stockholders' equity        $32,000,000

A. What is the maximum amount that Beta Corps. Can pay in cash dividends, without impairing its legal capital, if it is headquartered in a U.S. state where capital defined as the par value of common stock?

B. What is the maximum amount that Beta Corps. Can pay in cash dividends, without impairing its legal capital, if it is headquartered in a U.S. state where capital defined as the par value of common stock, plus paid in capital in excess par?

Question 3: Delta Corps earned $2.50 per share during fiscal year 2008 and paid cash dividends of $1.00 per share. During the fiscal year that just ended on December 31, 2009, Delta earned $3.00 per share, and the firm's managers expect to earn this amount per share during fiscal years 2010 and 2011, as well.

A. What was Delta's payout ratio for fiscal year 2008?

B. If Delta's managers want to follow a constant nominal dividend policy, what dividend per share will they declare for fiscal year 2009?

C. If Delta's managers want to follow a constant payout ratio dividend policy, what dividend per share will they declare for fiscal year 2010?

D. If Delta's managers want to follow a partial-adjustment strategy, with a target payout ratio equal to FY 2008's, how could they change dividend payments during 2009, 2010, 2011?

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Finance Basics: Determining the total discount or premium for issue
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