FIN 650 GC Week 8 Exam 3 Latest

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A. $453,443 B. $476,115 C. $499,921 D. $524,917 E. $551,163 In its negotiations with its investment bankers, Patton Electronics has reached an agreement whereby the investment bankers receive a smaller fee now (6% of gross proceeds versus their normal 10%) but also receive a 1-year option to purchase an additional 200,000 shares at $5.00 per share. Patton will go public by selling $5,000,000 of new common stock. The investment bankers expect to exercise the option and purchase the 200,000 shares in exactly one year, when the stock price is forecasted to be $6.50 per share. However, there is a chance that the stock price will actually be $12.00 per share one year from now. If the $12 price occurs, what would the present value of the entire underwriting compensation be? Assume that the investment banker's required return on such arrangements is 15%, and ignore taxes. $1,235,925 $1,300,973 $1,369,446 $1,441,522 $1,517,391 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 residual value as a fixed asset. residual value as a liability. present value of future lease payments as an asset and also showing this same amount as an offsetting liability. undiscounted sum of future lease payments as an asset and as an offsetting liability. undiscounted sum of future lease payments, less the residual value, as an asset and as an offsetting liability. Question 4. A central question that must be addressed in bankruptcy proceedings is whether the firm's inability to meet scheduled interest payments results from a temporary cash flow problem or from a potentially permanent problem caused by falling asset values. • True False Question 5. Operating leases often have terms that include A. maintenance of the equipment by the lessor. B. full amortization over the life of the lease. C. very high penalties if the lease is cancelled. D. restrictions on how much the leased property can be used. E. much longer lease periods than for most financial leases. Question 6. The primary test of feasibility in a reorganization is whether the firm's fixed charges after reorganization can be covered by its projected cash flows.
• True False Question 7. Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time? A. The yield to maturity on the company’s outstanding bonds increases due to a weakening of the firm’s financial situation. B. A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates. C. The flotation costs associated with issuing new bonds rise. D. The firm’s CFO believes that interest rates are likely to decline in the future. E. The firm’s CFO believes that corporate tax rates are likely to be increased in the future. Question 8. Palmer Company has $5,000,000 of 15-year maturity bonds outstanding. Each bond has a maturity value of $1,000, an annual coupon of 12.0%. The bonds can be called at any time with a premium of $50 per bond. If the bonds are called, the company must pay flotation costs of $10 per new refunding bond. Ignore tax considerations¾assume that the firm's tax rate is zero. The company's decision of whether to call the bonds depends critically on the current interest rate on newly issued bonds. What is the breakeven interest rate, the rate below which it would be profitable to call in the bonds? A. 9.57% B. 10.07% C. 10.60% D. 11.16% E. 11.72% Question 9. To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases. What is the net advantage to leasing (NAL), in thousands? (Suggestion: Delete 3 zeros from dollars and work in thousands.) A. $96 B. $106 C. $112 D. $117 E. $123 Question 10. Which of the following statements is most CORRECT?
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Page 5 and 6: B. If a firm sells 1,000,000 new sh
Page 7 and 8: A. When a corporation’s shares ar

FIN 650 GC Week 8 Exam 3 Latest

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