Question 1) When you are considering two different financing plans, does being at the level where earnings per share are equal between the two plans always mean you are indifferent as to which plan is selected?
Question 2) Under what circumstances would it be advisable to borrow money to take a cash discount?
Question 3) Explain the role of financial intermediaries in the flow of funds through the three-sector economy.
Question 4) The Delta Corporation has a $20 million bond obligation outstanding, which it is considering refunding. Though the bonds were iitially issued at 13 percent, the interest rates on similar issues have declined to 11.5 percent. The bonds were originally issued for 20 years and have 16 years remaining. The new issue would be for 16 years. There is a 9 percent call premium on the old issue. The underwriting cost on the new $20 million issue is $560,000, and the underwriting cost on the old issue was $400,000. The company is in a 40 percent tax bracket, and it will use a 7 percent discount rate (rounded after-tax cost of debt) to analyze the refunding decision. Should the old issue be refunded with new debt?
Question 5) Kristy Fashions, Inc., has 4.5 million shares of common stock outstanding. The current market price of Kristy Fashions common stock is $60 per share rights-on. The compnay' snet income this year is $18 million. A rights offering has been announced in which 450,000 new shares will be sold at $55 per share. The subscription price of $55 plus 10 rights is needed to buy one of the new shares.
a) What are the earnings per share and price-earnings ratio before the new shares are sold via the rights offering?
b) What would the earnings per share be immediately after the rights offereing? What would the price-earnings ratio be immediately after the rights offering? (Assume there is no change in the market value of the stock, except for the change that occurs when the stock begins trading ex-rights.) Round all answers to two places to the right of the decimal point.
Question 6) What factors would influence a U.S. business firm to go overseas?
Question 7) What factors beyond the normal domestic analysis go into a financial feasibility study for a multinational firm?
Question 8) An investor in the United States bought a one-year New Zealand security valued at 195,000 New Zealand dollars. The U.S. dollar equivalent was $100,000. The New Zealand security earned 16 percent during the year, but the New Zealand dollar depreciated 5 cents agains the U.S. dollar during the time period ($0.51/NZD) to $0.46/NZD). After transferring the funds back to the United States, what was the investor's return on her $100,000? Determine the total ending value of the New Zealand investment in New Zealand dollars and then translate this value to U.S. dollars. Then compute the return on the $100,000.