Finance Question

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Kzv_7

Economics

Saudi electronic university

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Q-1. List four protective covenants that you might be interested in as a prospective bondholder. Briefly describe why these would be realistic bondholder concerns. How would a convertible bondholder decide whether to exercise his rights of exchange? ( Words- 300 to 400 ) Q-2- How do venture capital firms design successful deals? Why it is likely that venture capital is disbursed in installments, rather than issuing all necessary funds at once? ( Words- 300 to 400 ) Q-3- (A)- Calculate the annual value of an interest tax shield under the assumption that a firm maintains debt at a permanent $1,000,000 level and rate of 12%. The corporate tax rate is 35%. If there is no chance of financial distress, how does the value of the firm change as a result of this debt? (B)- How are dividends paid and how do companies decide on dividend payments? Discuss the concept of dividend signaling. ( Words- 250 to 350 ) Q-4- Discuss how agency problems can develop between shareholders and bondholders when the firm is experiencing financial distress. Is there a rule for finding optimal capital structure? ( Words- 300 to 400 ) Note. To improve your answers, you are requested to use at least 5 recent scientific references. __________________________________________________________________- How do firms develop a short-term financing plan that meets their need for cash? ( 100 Words ) No need for a references to this question
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4 Questions
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Quiz 1
The four protective covenants that you might be interested in as a prospective bondholder are:
1. Investment Representation
2. Events of Default
3. Repayment and Enforcement Clause
4. Registration and Transfer of Bonds
Briefly describe why these would be realistic bondholder concerns.
In the event of a filing for bankruptcy by AMT, bondholders would want to ensure that they
have the financial security to protect them from potential losses, i.e., a guarantee that the
investment they hold in AMT will be repaid in exchange for the credit risk assumed by becoming
a bondholder in AMT.
How would a convertible bondholder decide whether to exercise his rights of exchange?
In the event of a filing for bankruptcy by AMT, however, bondholders would be unable to
exchange their bonds for zero coupon bonds as they cannot exercise the right of conversion.
They may therefore decide not to exercise this right and let AMT go into default and be
liquidated (Kulin & Johansson Sevä, 2019).
There are typically three basic situations that occur to trigger one of the bondholder's rights:
1. Failure of the Bondholder to meet its Performance Rights or other Performance Rights triggers
under the indenture, e.g., default on interest payment or failure to pay principal and interest on
time
2. A Corporate Event of Default, which occurs when a corporate debtor defaults on one or more
conditions specified in the indenture, usually an event of default requiring payment and
redemption of the bonds; most commonly events such as bankruptcy filing

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3. Bondholder Suit; an action that the bondholders may take to regain what they are owed, such
as a breach of contract suit against the issuer.
A bondholder may be able to exercise its rights on either a mandatory or an optional basis. An
exercise of compulsory ownership occurs when (1) an event of default has occurred and is
continuing; (2) the indenture provides explicitly that an event of default continues until it is
cured, waived, or otherwise eliminated; (3) acceleration of payments is required by the indenture
and specified in the occurrence clause.
Quiz 2
How do venture capital firms design successful deals?
Venture capital firms design successful deals by chan...


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