Description
8- The Burma Hat Company's warrant is trading for $10.20. The warrant carries the option to purchase two shares of common stock for $48. What is the speculative premium if the stock price is $51.30?
- $3.60
- $3.30
- $6.60
- $10.20
9- How much must you invest today at 10% interest in order to see your investment grow to $12,000 in 3 years?
- $7,320
- $9,012
- $17,052
- $8,532
10- Firm X has a tax rate of 29%. The price of its new preferred stock is $65 and its flotation cost is $2.00. The cost of new preferred stock is 12%. What is the firm's dividend? (Round your answer to 2 decimal places.)
- $7.56
- $9.01
- $6.21
- $9.71
11- Ambrin Corp. expects to receive $5,000 per year for 13 years and $6,500 per year for the next 13 years. What is the present value of this 26 year cash flow? Use an 9% discount rate. Use Appendix D
- $53,300
- $86,101
- none of these
- $64,531
12- The "floor" or pure bond value of a convertible bond is found by
- multiplying the price of the firm's common stock by the conversion ratio and adding the present value of the bond's face value.
- adding the present value of the bond's interest payments to the present value of the bond's face value.
- multiplying the bond's conversion premium by the price of the firm's common stock
- multiplying the price of the firm's common stock by the conversion ratio.
13- Which of the following characteristics are drawbacks of convertible bonds?
Conversion may be forced on the bondholder by call provisions on the convertible bond.
- Downside protection has minimal effectiveness if the bond is bought at a large premium over floor value.
- Interest rates on the debt-instrument part of a convertible bond are frequently below market interest rates.
- All of these options are drawbacks of convertibles.
14- Which of the following is true?
- As the price of common stock increases, the conversion value and the floor price increase.
- As the price of common stock increases, the market price of a convertible bond and the conversion value increase.
- Two of the options are true.
- As the price of common stock increases, the market price of a convertible bond and the conversion premium increase.
15- A firm's preferred stock pays an annual dividend of $2, and the stock sells for $71. Flotation costs for new issuances of preferred stock are 7% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 35%? (Round your answer to 2 decimal places.)
- 1.68
- 4.48
- 3.03
- 5.18