8nts3 02:55:06SkippedeBookAfter successfully completing your corporate finance class, you feel the next challengeahead is to serve on the board of directors of Cornwall Enterprises. Unfortunately, youwill be the only person voting for you. If the company has 405,000 shares outstanding,and the stock currently sells for $46, how much will it cost you to buy a seat if thecompany uses straight voting? (Do not round intermediate calculations.)Total cost

Straight voting refers to the voting scheme in which directors are to be elected by the shareholders…

Answered: After successfully completing your…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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=42:09 After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Cornwall Enterprises. Unfortunately, you will be the only person voting for you. The company has 430,000 shares outstanding, and the stock currently sells for $51, If there are four seats in the current election, how much will it cost you to buy a seat? (Do not round intermediate calculations.) Total cost =
Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $120 million last year and is not expected to grow. PizzaPalace is in the 25% state-plus-federal tax bracket, the risk-free rate is 6 percent, and the market risk premium is 6 percent. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. If the companywere to recapitalize, then debt would be issued, and the funds received would be used to repurchase stock. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures:Percent Financedwith Debt, wd rd0%…
2 - You work for the CEO of a newly incorporated company that plans to acquire long-forgotten songs, like “Let’s Do Something Cheap and Superficial”, “Take This Job and Shove It”, and the “Mother-in-Law Song” and promote them to increase their popularity to earn royalties. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is $400,000. Other data for the firm are shown below. How much higher or lower will the firm's expected ROE be if it uses some debt rather than all equity, i.e., what is the ROE when using financial leverage minus the ROE when using no financial leverage? 0% Debt 60% Debt Operating income (EBIT) $400,000 $400,000 Required investment $2,500,000 $2,500,000 % Debt Financing 0.0% 60.0% $ of Debt Financing $0.00 $1,500,000 $ of Common Equity Financing $2,500,000 $1,000,000 Interest rate NA 8.00% Tax rate 25% 25% 5.85%…
2. An analyst for Acme, R. Runner, has recommended that Peter the Anteater purchase shares in a private firm (a firm that is not traded on any exchange) called Dynamite Corp. Dynamite has 30% debt and 70% equity. R. Runner believes that Dynamite will generate a return of 10% over the next year. Since Y. Lee is new to the job, he decides to do a little research on his own. He finds a company, Explosions Unlimited, that has very similar business as Dynamite. Explosions has an equity beta of 1.05 and is composed of 40% debt and 60% equity. Should Peter the Anteater buy the stock? The expected return on the market is 12% and the expected risk-free rate is 5%.
The analysis that we have to provide is as follows: Review the specifics of the IPO, including underwriting spread and other expenses. Consider the concept of underpricing and a higher than normal first day spike in stock price. What does this mean for the issuing company? What does this mean for the underwriter? The Mini Case we have to go off of is: Mutt.Com was founded in 2015 by two graduates of the University of Wisconsin with help from Georgina Sloberg, who had built up an enviable reputation for backing new start-up businesses. Mutt.Com's user-friendly system was designed to find buyers for unwanted pets. Within 3 years, the company was generating revenues of $3.4 million a year and, despite racking up sizable losses, was regarded by investors as one of the hottest new e-commerce businesses. Therefore, the news that the company was preparing to go public generated considerable excitement. The company's entire equity capital of 1.5 million shares was owned by the two founders…
Scenario: Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: Answer the following questions for the Mulatto brothers. How are paid-in-capital and retained earnings: Similar? Different? What are the main categories of paid-in capital? When does a company declare a cash dividend? Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? What does the term par value of stock mean? The owners are desirous of comparing serval financial transactions and possible outcomes to assist…
After learning how to value a stock in his Corporate Finance class, Mark Stark decided to put his knowledge into practice and use the constant growth rate model to value El Tomate Feliz Co. He found that the company was severely undervalued. The stock was trading at $50 per share, but he valued it at $120 per share. Mark complained: “I thought that El Tomate Feliz was a steal and bought as many shares as I could, but the price didn’t go up. I have waited a year, and the price has not changed that much.” Lower necessary rate of return - Mark would have estimated his cost of equity or required rate of return at lower levels, resulting in better intrinsic values as a result of the lower discount rate. What does this mean,” …Mark would have estimated his cost of equity or required rate of return at lower levels"
Despite having the correct answers just wanted to ge explanations for eveything.
Scenario: John Brown is considering opening a business, but the major decision faced is how to organize the business. John anticipates generating a massive profit during the first year and that the following years should be relatively profitable. Although he has enough to start the business now as a partnership, he believes cash flow may be an issue as the company grows. John believes that the corporate form of operation will be his best option and have hired you as a consultant and seek your advice. Required: Answer the following questions for John. Explain the corporate characteristic termed “no mutual agency” Explain the corporate characteristic termed limited liability. Explain the term outstanding stock.
5.
Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $120 million last year and is not expected to grow. PizzaPalace is in the 25% state-plus-federal tax bracket, the risk-free rate is 6 percent, and the market risk premium is 6 percent. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. If the company were to recapitalize, then debt would be issued, and the funds received would be used to repurchase stock. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: Percent Financed with Debt, Wd Rd 0% 20% 8.0% 30% 8.5% 40% 10.0%…
Organizing a corporation and issuing stock Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350 000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice. Requirements What is the main advantage they gain by selecting a corporate form of business now? Would you recommend they initially issue preferred or common stock? Why? If they decide to issue $5 par common stock and anticipate an initial market price of $20 per share, how many share will they need to issue to raise $2,750,000?

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