Problem 1: Cox Media Corporation pay an 11 percent coupon rate on debentures that are due in 20 years. The current yield to maturity on bonds of similar risk is 8 percent. The bonds are currently callable at $1,060. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds.
a) Find the theroretical market value of the bonds using semiannual analysis.
b) Do you think the bonds will sell for the price you arrived at in part a?
Problem 2: The Beasley Corporation has been experiencing declining earnings, but has just announced a 50 percent salary increase for its top executives. A dissadent group of stockholders wants to oust the existing board of directors. There are currently 11 directors and 30,000 shares of stock outstanding. MR. Wright, the president of the company, has the full support of the existing board. The dissadent stockholders control proxies for 10,001 shares. Mr. wright is worried about losing his job.
a) Under cumulative voting procedures, how many directors can the dissadent stockholders elect with proxies they now hold?
How many directors could they elect under majority rule with these proxies?
b) How many shares (or proxies) are needed to elect six directors under cumulative voting?
Problem 3: Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $1.5 million. Medical Labs will provide the following pattern of cash inflows and synergistic benefits for the next 25 years. There is no tax loss carry-forward.
YEARS
1 to 5 6 to 15 16 to 25
Cash Inflow (aftertax) $100,000 $120,000 $160,000
Synergistic benefits (aftertax) 15,000 25,000 45,000
The cost of capital for acquiring firm is 9 percent. Should the merger be undertaken?