Dixita Patel Chapter 6 homework Managerial Finance July 31, 2012 Critical Thinking 6.6. Coupon rate: how does bond issuer decide on the appropriate coupon rate to set on its bonds? Explain the difference between the coupon rate and the required return on a bond price? Coupon rate is the annual coupon divided by the face value of a bond. In this case Bond Issuers look at outstanding bonds of comparable maturity and risk.
It includes options and warrants as well as debt and stock. "(2) Participation rights – contractual rights of security holders to receive dividends or returns from the security issuer’s profits, cash flows, or returns on investments. " "(3) Preferred Stock – a security that has preferential rights compare to capital stock. " (C) What information about securities must companies disclose? Discuss how Hincapie should report the proposed preferred stock issue.
Option (A) provides a clearer picture on how the stock options affect the company’s equity through the balance sheet. Expense: An expense represents the actual or expected cash outflow that results from an entity’s ongoing major or central operations. Option (A) values the compensation based on the value of the stock options. Therefore, this transaction
Securities: The evidence of debt or ownership or a related right. It includes options and warrants as well as debt and stock. 2. Participation Rights: Contractual rights of security holders to receive dividends or returns from the security issuer’s profits, cash flows, or returns on investments. 3.
(Individual or Component Costs of Capital) Compute the cost for the following sources of financing: a. A bond selling to yield 9% after flotation costs, but prior to adjusting for the marginal corporate tax rate of 34%. In other words, 9% is the rate that equates the net proceeds from the bond with the present value of the future flows (principal and interest). b. A new common stock issue that
“Arbitrage in the Government Bond Market?” Questions 1) Create the 05’ synthetic bond described in the case. How should the price of this synthetic relate to the callable bonds and why? On January 7, 1991, how much would it cost to create synthetic bond using the ’05 bonds? The Callable Bonds are priced at $101.25. The synthetic Bond should be at least equal or higher than the callable bond.
Thus, weighted average the interest rates for debt is: (8.95*0.51 + 8.72 * 0.49) = 8.84% Full cost of debt will be government fixed rates plus debt rate premium. Therefore, Kd=8.84%+1.3%=10.14% Cost of equity: CAPM Model: Rf + (Rm – Rf)*β = Ke Rf-risk free rate Rf is measured as the currently prevailing yield on a government security. Thus, it refers us to table B. There are long-term and short-term maturity. The principal we are using – the match of the free risk government security with the life of the analyzed assets.
a. Adjusted trial balance b. Comparative balance sheets c. Current income statement d. Additional information 4. The primary purpose of the statement of cash flows is to a. provide information about the investing and financing activities during a period. b. prove that revenues exceed expenses if there is a net income.
If subsequently resold for a sum larger than the cost, Alcoa should report for the sale of the treasury stock by debiting cash for the sale cost, crediting treasury stock for cost, and crediting additional paid-in capital from repurchased stock for the excess of the selling price over the cost. Adversely, if the stock is retired, Alcoa
Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest cost. Page 1 of 6 b. c. d. Borrowing cost that entitles for tax deduction under subsection 33(1) of ITA 1967 does not include legal fee, guarantee fee, professional fee and other fees/costs incur for obtaining the loan except for entity on which money is its stock in trade. 2. OBJECTIVE The objective of these Guidelines is to