Basic Buildings Inc. has decided to go public with a $5,000,000 new equity issue. Its investment bankers agreed to take a smaller fee now (6 percent of par value versus 10 percent) in exchange for a 1-year option to purchase an additional 200,000 shares of the company at $5.00 per share. The investment banking firm expects to exercise its option and purchase the 200,000 shares in exactly one year's time when the stock price is expected to be $6.50 per share. However, if the stock price is actually $12.00 per share one year from now, what is the present value of the entire underwriting agreement to the investment banker? Assume that the investment banker's required return on such arrangements is 15 percent and ignore any tax considerations.
a) Prepare a cash budget for Sharpe covering the first seven months of 2004. b) Sharpe has $220,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes? No, the firm will not have enough cash to pay the notes payable. Although there is enough ending cash if $200,000 is spent on the notes payable then there will be an insufficient amount to purchase raw materials or other expenditures. If the firm decides to use its cash for the notes payable it will then have to obtain financing to maintain the cash balance.
This year, Lacey, DLK’s president, decided to seek additional funds to finance DLK’s working capital. CME declined to extend additional funds because of the money already invested in DLK. High Tech Venture Capital Inc. proposed to lend DLK $100,000, but at a 10% premium over the prime rate. (Other software manufacturers in the same market can borrow at a 3% premium.) First Round Capital proposed to invest $50,000 of equity capital into DLK, but on the condition that the investment firm be granted the right to elect five members to DLK’s board of directors.
Stockholders may assume when reading the financial statements that they would be receiving a higher return each month or quarter when in reality that would not be the case especially if they are planning on switching to LIFO. It is unethical to make a huge financial decision based on only short term goals. The Sabarnes-Oxley act of two-thousand and twelve, contains 11 sections detailing rules and regulations for financial reporting. The SOX act section 404 requires that management of
The oil in the refuge would have an effect on foreign oil dependency and cost of gasoline, but not enough to make a major difference. It is questioned that the refuge may only contribute to a fraction of the United States oil, with the United States already receiving about 52 percent of its oil from foreign countries. The refuge has been projected that it would only reduce oil dependency by a small fraction. The United States consumes approximately about 3 million barrels of a day and at that rate what is projected to be in the refuge would only be able to supply the United States for 6 months. In a more extended look at it over the next 20 years, the oil refuge would only be able to meet 7.5 percent of the United States consumption of oil and as well as reduce the dependence of foreign oil by 15 percent.
Although the customers only needed the shipment the following year, this would be a way to exceed the targeted budget. Instead of offering the customers an early discount for receiving the merchandise earlier, Campbell sent the merchandise and reported the sales to be included in the financial reports. As a result of this procedure, the reported sales for the fourth quarter exceeded the budgeted amount with $80,000.00. The actual sales revenue for the year was over with $14,000.00. The internal auditors questioned why the two shipments were done before December 31, since the requested dates were in the following year.
Price = $1,000 x 0.4632 + $1,000 x 6% x 6.7101 Price = $463.20 + $402.61 Price = $865.81 b. What would be the price if comparable debt yields 8 percent and the bond matures after five years? Price = $1,000 x 0.6806 + $1,000 x 6% x 3.9927 Price = $680.60 + $239.56 Price = $920.16 c. Why are the prices different in a and b? The price is different in a and b because a has longer period. d. What are the current yields and the yields to maturity in a and b?
The parent receives annual dividends from the subsidiary of $2,500,000. If the parent's marginal tax rate is 34% and if the exclusion on intercompany dividends is 70%, what is the effective tax rate on the intercompany dividends, and how much net dividends are received? Question 20 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.
2. I utilized an “Acid Test Ratio” which shows us whether the entity could pay all its current liabilities if they became due now or sooner than expected. In 2011, the acid test ratio was 0.64. By 2012, it decreased to 0.43. Even though the acid-test ratio is less than 1 which rates in the lower third quartile in the industry of 1.6, 0.9 to 0.6, it indicates a concern with repaying current liabilities.
If the cash is higher than the net income, the company’s net income is of high quality. If the cash is lower than the net income, the company’s net income is not turning into cash and a red flag should go up. Having more cash than the net income can mean shareholders will receive an increase in dividends can reduce debt, buy back stocks, or purchase another company. According to, the cash flow statement Home Depot, Incorporated is similar to fiscal year 2007. In fiscal year 2008, Home Depot Incorporated generated $5.5 billion of cash flow from operations and used $2.0 billion to repay short-term debt and other obligations plus $1.8 billion for capital expenditures and $1.5 billion in dividends.