FIN 650 GC WEEK 8 EXAM 3 LATEST

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.
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.