Problem Set 4

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Business Finance

Description

Complete the following problem sets from the "Problems" section in Chapters 18, 22, and 24 of Financial Management: Theory and Practice.

  1. Chapter 18: 18-1 and 18-2
  2. Chapter 22: 22-1 and 22-2
  3. Chapter 24: 24-1

APA format is not required, but solid academic writing is expected. Excel format please.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.



Problem Set 4

1
Unsatisfactory
0.00%

2
Less than Satisfactory
74.00%

3
Satisfactory
79.00%

4
Good
87.00%

5
Excellent
100.00%

100.0 %Content

30.0 %Chapter 18 Problems

Chapter 18 problem calculations and work are not included.

Chapter 18 problem calculations and work are incomplete or incorrect.

Chapter 18 problem calculations and work are included but contain formulaic errors or inaccuracies.

Chapter 18 problem calculations and work are complete and mostly correct.

Chapter 18 problem calculations and work are complete and correct.

30.0 %Chapter 22 Problems

Chapter 22 problem calculations and work are not included.

Chapter 22 problem calculations and work are incomplete or incorrect.

Chapter 22 problem calculations and work are included but contain formulaic errors or inaccuracies.

Chapter 22 problem calculations and work are complete and mostly correct.

Chapter 22 problem calculations and work are complete and correct.

30.0 %Chapter 24 Problems

Chapter 24 problem calculations and work are not included.

Chapter 24 problem calculations and work are incomplete or incorrect.

Chapter 24 problem calculations and work are included but contain formulaic errors or inaccuracies.

Chapter 24 problem calculations and work are complete and mostly correct.

Chapter 24 problem calculations and work are complete and correct.

10.0 %Mechanics of Writing (includes spelling, punctuation, grammar, language use)

Surface errors are pervasive enough that they impede communication of meaning. Inappropriate word choice or sentence construction is used.

Frequent and repetitive mechanical errors distract the reader. Inconsistencies in language choice (register) or word choice are present. Sentence structure is correct but not varied.

Some mechanical errors or typos are present, but they are not overly distracting to the reader. Correct and varied sentence structure and audience-appropriate language are employed.

Prose is largely free of mechanical errors, although a few may be present. The writer uses a variety of effective sentence structures and figures of speech.

Writer is clearly in command of standard, written, academic English.

100 %Total Weightage

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PROBLEMS Answers Appear in Appendix B Easy Problems 1-2 (18-1) Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent Profit or Loss on New offering of Beedles Inc., the terms were as follows: Stock Issue Price to public $5 per share Number of shares 3 million Proceeds to Beedles $14,000,000 0952. Financial Management. Theory & Practice, fourteenth Edition Brigham Ehrhardt - 9 Censare Learning. All rights reserved. No distribution allowed without express authorization. Distributed by Grand Canyon U Chapter 18 Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks 767 The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? a. $5 per share b. $6 per share c. $4 per share The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $22 per share because of signaling effects. The underwriters' compensation will be 5% of the issue price, so Beranek will net $20.90 per share. The firm will also incur expenses in the amount of $150,000. How many shares must the firm sell to net $20 million after underwriting and flotation expenses? (18-2) Underwriting and Flotation Expenses PROBLEMS Answers Appear in Appendix B The following information is required to work Problems 22-1 through 22-4. Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 8%. Assume that the risk-free rate of interest is 5% and the market risk premium is 6%. Both Vandell and Hastings face a 40% tax rate. Easy Problem 1 (22-1) Vandell's free cash flow (FCF) is $2 million per year and is expected to grow at a constant Valuation rate of 5% a year; its beta is 1.4. What is the value of Vandell's operations? If Vandell has $10.82 million in debt, what is the current value of Vandell's stock? (Hint: Use the corporate valuation model from Chapter 7.) Intermediate Problems 2-3 (22-2) Hastings estimates that if it acquires Vandell, interest payments will be $1.5 million per Merger Valuation year for 3 years, after which the current target capital structure of 30% debt will be maintained. Interest in the fourth year will be $1.472 million, after which interest and the tax shield will grow at 5%. Synergies will cause the free cash flows to be $2.5 million, $2.9 million, $3.4 million, and $3.57 million in Years 1 through 4, respectively, after which the free cash flows will grow at a 5% rate. What is the unlevered value of Vandell, and what is the value of its tax shields? What is the per share value of Vandell to Hastings Corporation? Assume that Vandell now has $10.82 million in debt. PROBLEMS Answers Appear in Appendix B Easy Problem 1 (24-1) Southwestern Wear Inc. has the following balance sheet: Liquidation Current assets $1,875,000 Accounts payable $ 375,000 Fixed assets 1,875,000 Notes payable 750,000 Subordinated debentures 750,000 Total debt $1,875,000 Common equity 1,875,000 Total assets $3,750,000 Total liabilities and equity $3,750,000 The trustee's costs total $281,250, and the firm has no accrued taxes or wages. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $2.5 million is received from sale of the assets?
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Explanation & Answer

Attached.

SHARES

PRICE
3.000.000

SHARES

PRICE

AMOUNT
$6
$18.000.000

PRICE

AMOUNT
$5
$15.000.000

3000000

SHARES

Chapter 18.1
AMOUNT
$4
$12.000.000

3000000

CHAPTER 18.2
PRICE PER SHARE

FLOATATION EXPENSES
$20,90

AMOUNT RAISED
$150.000
$20.000.000

CHAPTER 22.1
TAX RATE

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