1. A firm has a market value equal to its book value. Currently, the firm has excess cash of $600 and other assets of $5,400. Equity is worth $6,000. The firm has 500 shares of stock outstanding and net income of $900. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?
2. Firm X is being acquired by Firm Y for $35,000 worth of Firm Y stock. The incremental value of the acquisition is $2,500. Firm X has 2,000 shares of stock outstanding at a price of $16 a share. Firm Y has 1,200 shares of stock outstanding at a price of $40 a share. What is the actual cost of the acquisition using company stock?
3.You purchased five September futures contracts on silver when the price quote was 7.4. Given today's closing prices as shown in the table, your total profit or loss to date is:
|
Silver - 5,000 troy oz.: dollars and cents per troy oz.
|
|
|
Open
|
High
|
Low
|
Settle
|
Chg
|
|
Jul
|
5.971
|
6.131
|
5.970
|
6.100
|
.134
|
|
Sep
|
5.973
|
6.142
|
5.969
|
6.117
|
.133
|
4. The LaPorte Corporation has a new rights offering that allows you to buy one share of stock with 3 rights and $20 per share. The stock is now selling ex-rights for $26. The price rights-on is:
5. Magic Mobile Homes is to be liquidated. All creditors, both secured and unsecured, are owed $2 million. Administrative costs of liquidation and wage payments are expected to be $500,000. A sale of assets is expected to bring $1.8 million after taxes. Secured creditors have a mortgage lien for $1,200,000 on the factory which will be liquidated for $900,000 out of the sale proceeds. The corporate tax rate is 34%.How much and what percentage of their claim will the unsecured creditors receive, in total?
6. The Telescoping Tube Company is planning to raise $2,500,000 in perpetual debt at 11% to finance part of their expansion. They have just received an offer from the Albanic County Board of Commissioners to raise the financing for them at 8% if they build in Albanic County. What is the total added value of debt financing to Telescoping Tube if their tax rate is 34% and Albanic raises it for them?
7.You own 310 shares of Abco, Inc. stock. The company has stated that it plans on issuing a dividend of $.60 a share at the end of this year and then issuing a final liquidating dividend of $2.15 a share at the end of next year. Your required rate of return on this security is 11 percent. Ignoring taxes, what is the value of one share of this stock today?
8. National Event Coordinators is contemplating the acquisition of a new tent that will be used for major outdoor events. The purchase price is $144,000. The firm uses MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The tents have a 4-year life after which time they are worthless. The tent can be leased for $37,000 a year. The firm can borrow money at 10 percent and has a 33 percent tax rate. What is the net advantage to leasing?
9.You sold a put contract on EDF stock at an option price of $.40. The option had an exercise price of $20. The option was exercised. Today, EDF stock is selling for $19 a share. What is your total profit or loss on all of your transactions related to EDF stock assuming that you close out your positions in this stock today? Ignore transaction costs and taxes.
10. Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 21,000 shares of stock. The debt and equity option would consist of 13,000 shares of stock plus $250,000 of debt with an interest rate of 7 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.
11.A stock had returns of 8 percent, -4 percent, 6 percent, and 18 percent over the past four years. What is the standard deviation of these returns?
12. Wear Ever is expanding and needs $9 million to help fund this growth. The firm estimates it can sell new shares of stock for $35 a share. It also estimates it will cost an additional $350,000 for filing and legal fees related to the stock issue. The underwriters have agreed to a 5 percent spread. How many shares of stock must the firm sell if it is going to have $9 million available for its expansion needs?
13. The current market value of the assets of Smethwell, Inc. is $81 million, with a standard deviation of 17 percent per year. The firm has zero-coupon bonds outstanding with a total face value of $42 million. These bonds mature in 3 years. The risk-free rate is 5 percent per year compounded continuously. What is the value of d1?
14. Phil's Carvings, Inc. wants to have a weighted average cost of capital of 9%. The firm has an after-tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?
15. Fargo North is considering the purchase of some new equipment costing $67,000. This equipment has a 2-year life after which time it will be worthless. The firm uses straight-line depreciation and borrows funds at a 10 percent rate of interest. The company's tax rate is 35 percent. The firm also has the option of leasing the equipment. What is the amount of the break-even lease payment?
16. The Aggie Company has EBIT of $50,000 and market value debt of $100,000 outstanding with a 9% coupon rate. The cost of equity for an all equity firm would be 14%. Aggie has a 35% corporate tax rate. Investors face a 20% tax rate on debt receipts and a 15% rate on equity. Determine the value of Aggie.
17. The TRIM Corporation has decided to build a new facility for its R&D department. The cost of the facility is estimated to be $150 million. TRIM wishes to finance this project using its traditional debt-equity ratio of 1.2. The issue cost of equity is 7% and the issue cost of debt is 2%. What is the total flotation cost?
18. Aardvark Enterprises has agreed to be acquired by Lawson Products in exchange for $23,000 worth of Lawson Products stock. Lawson has 1,100 shares of stock outstanding at a price of $12 a share. Aardvark has 2,000 shares outstanding with a market value of $16 a share. The incremental value of the acquisition is $3,300. What is the value of Lawson Products after the merger?
19. Calculate the duration of a 4-year $1,000 face value bond, which pays 8% coupons annually throughout maturity and has a yield to maturity of 9%