Answers to Chapter 9 Questions 1. This is because stock market movements are sometimes seen as predictors of economic activity in a country. This is also because corporate stocks may be the most widely held of all financial securities. Most individuals own stock securities either directly through stock purchases or indirectly through pension fund and mutual fund investments, and thus their economic wealth fluctuates closely with the market. 2. While common stockholders can potentially receive
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- firm estimates dividends will grow at 5% per year after that - flotation costs for new shares would be $0.10 per share - has 150,000 preferred shares outstanding - current price is $9.50 per share - dividend is $0.95 per share - if new preferred are issued, they must be sold at 5% less than the current market price (to ensure they sell) and involve direct flotation costs of $0.25 per share - has a total
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000/1,000 x 80 | 320,000 | | per share effect | | | incremental numerator effect | 165,600 | | incremental denominator effect | 320,000 | | per share effect | 0.5175 | | therefor potentially dilutiveFor preferred shares | | 4 | dividend required on cumulative preferred shares | | | 280,000 x 0.8 (no tax deduction) | | | dividend required avoided | 224,000 | | convertible prefer shares to common
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- firm estimates dividends will grow at 5% per year after that - flotation costs for new shares would be $0.10 per share - has 150,000 preferred shares outstanding - current price is $9.50 per share - dividend is $0.95 per share - if new preferred are issued, they must be sold at 5% less than the current market price (to ensure they sell) and involve direct flotation costs of $0.25 per share - has a total
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important financial and non-financial considerations? (b)Which financial alternative do you suggest for the company and why? (c).Analyze the option of issuing the rights issue in detail. New stock (share) issue offered to existing stockholders (shareholders) in proportion to their current stock/shareholding, for a specified period and at a specified (usually discounted) price. Its objective is to afford them the opportunity to maintain their percentage of ownership of the firm Ques. 4
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CHAPTER 7 COMMON STOCK: CHARACTERISTICS, VALUATION AND ISSUANCE ANSWERS TO QUESTIONS: 1. a. Nonvoting stock - common stock that is issued when the firm wishes to raise additional equity capital but does not want to give up voting power. b. Stock split - the issuance of a number of new shares in exchange for each old share held by a stockholder in order to lower the stock price to a more desirable trading level. c. Reverse stock split - the issuance of one new share
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successful and you lost that opportunity to invest in that. So you are taking contributed capital, which is your money you are putting into the company and take loans from banks to start up your business along with selling you stock to investors who will pay you to buy the stock then the business will pay the stockholder interest through out the period and the whole loan back eventually, which would be a amortized loan. Compared to an interest only loan and a discount loan. Taking the loans from the
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keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 4.5? 2. PNB Industries has 20 million shares of common stock outstanding with a market price of $18.00 per share. The company also has outstanding preferred stock with a market value of 50 million, and $500,000 bonds outstanding, each with face value $1,000 and selling at 97% of par value. The cost of equity is 15%, the cost of preferred is 12% and the cost of debt is 8.50%. If PNB’s tax rate is 40%, what is
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attending an executive education course at a well-known business school, came across a case which involved calculating the cost of capital for Telus Corporation (Telus). Basic data such as the Balance Sheet, Income Statement, Data on Telus’ Common Stock, Market Index, and the Average Annual Returns in North American Capital Markets were provided. In order to calculate Telus’ cost of capital we need to calculate the company’s Cost of Equity, Cost of Debt, and Tax Rate along with their weighted cost
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Common stock, $0.25 par $400,000 Paid-in capital in excess of par $4,500,000 Retained earnings $1,100,000 a. How many shares has the company issued? 400,00/.025=1.6 MILLION SHARES b. What is the book value per share? (400,000+4,500,000+1,100,000)/1.6 MILLION SHARES = $3.75 PER SHARE c. Suppose that Hilton Web-Cams has made only one offering of common stock. At
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