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Category > Business & Finance Posted 11 Oct 2017 My Price 18.00

FIN 540 Week 5 Midterm Exam

FIN 540 Week 5 Midterm Exam Answers

·         Question 1

   
 

From the lessee viewpoint, the riskiness of the cash flows, with the possible exception of the residual value, is about the same as the riskiness of the lessee's

      
   
   
     

·         Question 2

   
 

Chapter 7 of the Bankruptcy Act is designed to do which of the following?

      
   
   
     

·         Question 3

   
 

Financial Accounting Standards Board (FASB) Statement #13 requires that for an unqualified audit report, financial (or capital) leases must be included in the balance sheet by reporting the

      
   
   
     

·         Question 4

   
 

Which of the following statements is most CORRECT?

      
   
   
     

·         Question 5

   
 

Which of the following statements is most CORRECT?

      
   
   
     

·         Question 6

   
 

Which of the following statements is most CORRECT?

      
   
   
     

·         Question 7

   
 

Which of the following statements concerning common stock and the investment banking process is NOT CORRECT?

      
   
   
     

·         Question 8

   
 

Which of the following statements concerning warrants is correct?

      
   
   
     

·         Question 9

   
 

Which of the following statements about valuing a firm using the APV approach is most CORRECT?

      
   
   
     

·         Question 10

   
 

Which of the following statements is most CORRECT?

      
   
   
     

·         Question 11

   
 

Which of the following statements is most CORRECT?

      
   
   
     

·         Question 12

   
 

Which of the following is generally NOT true and an advantage of going public?

      
   
   
     

·         Question 13

   
 

Which of the following statements is most CORRECT?

      
   
   
     

·         Question 14

   
 

Firms use defensive tactics to fight off undesired mergers.  These tactics do not include

      
   
   
     

·         Question 15

   
 

Operating leases often have terms that include

      
   
   
     

·         Question 16

   
 

In the lease versus buy decision, leasing is often preferable

      
   
   
     

·         Question 17

   
 

Which of the following statements is most CORRECT?

      
   
   
     

·         Question 18

   
 

Which of the following statements is NOT
CORRECT?

      
   
   
     

·         Question 19

   
 

The City of Charleston issued $3,000,000 of 8% coupon, 30-year, semiannual payment, tax-exempt muni bonds 10 years ago.  The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so.  The call premium would be 6% of the face amount.  New 20-year, 6%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2% of the amount of bonds sold.  What is the net present value of the refunding?  Note that cities pay no income taxes, hence taxes are not relevant.

      
   
   
     

·         Question 20

   
 

Warren Corporation’s stock sells for $42 per share.  The company wants to sell some 20-year, annual interest, $1,000 par value bonds.  Each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $47.  The firm’s straight bonds yield 10%.  Each warrant is expected to have a market value of $2.00 given that the stock sells for $42.  What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par?

      
   
   
     

·         Question 21

   
 

Kelly Tubes is considering a merger with Reilly Tires.  Reilly’s market-determined beta is 0.9, and the firm currently is financed with 20% debt, at an interest rate of 8%, and its tax rate is 25%.  If Kelly acquires Reilly, it will increase the debt to 60%, at an interest rate of 9%, and the tax rate will increase to 35%.  The risk-free rate is 6% and the market risk premium is 4%.  What will Reilly’s required rate of return on equity be after it is acquired?

      
   
   
     

·         Question 22

   
 

New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago.  It has been amortizing $3 million of flotation costs on these bonds over their 30-year life.  The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market.  A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million.  NYW's marginal tax rate is 40%.  The new bonds would be issued when the old bonds are called.
 
            What will the after-tax annual interest savings for NYW be if the refunding takes place?

      
   
   
     

·         Question 23

   
 

Europa Corporation is financing an ongoing construction project.  The firm will need $5,000,000 of new capital during each of the next 3 years.  The firm has a choice of issuing new debt or equity each year as the funds are needed, or issue only debt now and equity later.  Its target capital structure is 40% debt and 60% equity, and it wants to be at that structure in 3 years, when the project has been completed.  Debt flotation costs for a single debt issue would be 1.6% of the gross debt proceeds.  Yearly flotation costs for 3 separate issues of debt would be 3.0% of the gross amount.  Ignoring time value effects, how much would the firm save by raising all of the debt now, in a single issue, rather than in 3 separate issues?

      
   
   
     

·         Question 24

   
 

Upstate Water Company just sold a bond with 50 warrants attached.  The bonds have a 20-year maturity and an annual coupon of 12%, and they were issued at their $1,000 par value.  The current yield on similar straight bonds is 15%.  What is the implied value of each warrant?

      
   
   
     

·         Question 25

   
 

Orient Airlines’ common stock currently sells for $33, and its 8% convertible debentures (issued at par, or $1,000) sell for $850.  Each debenture can be converted into 25 shares of common stock at any time before 2019.  What is the conversion value of the bond?

      
   
   
     

Answers

SmartExpert
(118)
Status NEW Posted 11 Oct 2017 02:10 AM My Price 18.00

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