Financial
Management – Assignment
Please
refer to ebook access for accurate results: *(The correct answers are in
the back of the textbook)
Chapter 18: Public and Private
Financing: Initial Public Offering, Seasoned Offerings and Investment
Banks
Chapter 20: Hybrid Financing: Preferred Stock,
Warrants and Convertibles
Chapter 22: Mergers and Corporate Control
…………………………………………………………………
18-1 Beedles Inc. needed to raise $14 million
in an IPO and chose Security Brokers Inc. to underwrite the offering. The
agreement stated that Security Brokers would sell 3 million shares to the
public and provide $14 million in net proceeds to Beedles. The out-of-pocket
expenses incurred by Security Brokers in the design and distribution of the issue
were $300,000. What profit or loss did 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
…………………………………
18-3 Benjamin Garcia’s start-up business is
succeeding, but he needs $200,000 in additional funding
to fund continued growth. Benjamin and an angel investor agree the business is
worth $800,000 and the angel has agreed to invest the $200,000 that is needed.
Benjamin presently owns all 40,000 shares in his business. What is a fair price
per share and how many additional shares must Benjamin sell to the angel?
Because the stock will be sold directly to an investor, there is no spread; the
other flotation costs are insignificant.
…………………………………..
20-2 Breuer Investment’s convertible bonds
have a $1,000 par value and a conversion price of $50 a share. What is the
convertible issue’s conversion ratio?
………………………………….
22-1 Elliott’s Cross Country Transportation
Services has a capital structure with 25% debt at a 9% interest rate. Its beta
is 1.6, the risk-free rate is 4%, and the market risk premium is 7%. Elliott’s
combined federal-plus-state tax rate is 25%.
a.
What is Elliott’s cost of equity?
b.
What is its weighted average cost of capital?
c.
What is its unlevered cost of equity?
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