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Which of the following would be the best choice for CFC to do to raise the money it needs?

Which of the following would be the best choice for CFC to do to raise the money it needs?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Facts for Questions 40-41 Tweety, Inc. plans to be acquired by another company. Tweety, Inc.'s incomae stalement reflects the following: Net income Extraordinary Loss on Sale of a Division Depreciation and Amortization Expense Planned Capital Expenditures Decrease in Necessary Working Capital Debt Payments Interest Expense, net Non-Recurring Gain 971,237 185,371 62,c86 37,534 15,732 34,049 21,362 10,742 There are currently two proposals being considered by Tweety, Inc. Proposal 1: the acquiring company wil purchase all of Twoety, Inc.'s common stock outstanding in an all-cash deal. The purchase price will refect the entorprise value of the company (tactoring in its debi). Proposal 2: the acquiring company wil purchase all of Tweoty. Inc's common stock outstanding in an all-cash deal. The purchase price will refect the value of the company on a debl-free basis. Question 40 After factoring in Tweety, Inc.'s debt, what amount of cash is available for distribution lo the common shareholders if Proposal 1 is approved? (A) $1,176,048 (B) $1,120,637 (C) $1,145,808 (D) $957,010 Question 41. Which of the following relects the cash flow that will be used to valuo Tweety, Inc. on a debt- free basis if Proposal 2 is approvod? (A) S90,856 (0) $1,120,637 (C) $1,176,048 (D) $1,145,868
Transcribed Image Text:Facts for Questions 40-41 Tweety, Inc. plans to be acquired by another company. Tweety, Inc.'s incomae stalement reflects the following: Net income Extraordinary Loss on Sale of a Division Depreciation and Amortization Expense Planned Capital Expenditures Decrease in Necessary Working Capital Debt Payments Interest Expense, net Non-Recurring Gain 971,237 185,371 62,c86 37,534 15,732 34,049 21,362 10,742 There are currently two proposals being considered by Tweety, Inc. Proposal 1: the acquiring company wil purchase all of Twoety, Inc.'s common stock outstanding in an all-cash deal. The purchase price will refect the entorprise value of the company (tactoring in its debi). Proposal 2: the acquiring company wil purchase all of Tweoty. Inc's common stock outstanding in an all-cash deal. The purchase price will refect the value of the company on a debl-free basis. Question 40 After factoring in Tweety, Inc.'s debt, what amount of cash is available for distribution lo the common shareholders if Proposal 1 is approved? (A) $1,176,048 (B) $1,120,637 (C) $1,145,808 (D) $957,010 Question 41. Which of the following relects the cash flow that will be used to valuo Tweety, Inc. on a debt- free basis if Proposal 2 is approvod? (A) S90,856 (0) $1,120,637 (C) $1,176,048 (D) $1,145,868
Question 37. Total Consolidated, Inc. (TCI") accepted a commercial loan two years ago. The loan agroement Includes the following provision: Borrower shall maintain at all times a Consolidated Total Debt to Capital Ratio, as of the last day of oach fiscal quarter and calculated on a Consolidated basis for the four fiscal quartors most recently ended, equal to or loss than 1.00. Currently, TCI has $10,000,000 in total assets and $11,500,000 in total liabilities, including $6,000,000 in total debt. TCI has never missed an interest payment under the loan agreement. Is TCI currently in default? (A) Yes, because TCI breached its minimum net worth requirement. (B) No, because TCI never missed an Interest payment. (C) No, because TCl's debt-to-equity ratio is less than 1.00. (D) Yes, because TCrs debl-to-total-capital ratio is greater than 1.00. (E) No, because TCI's debt-to-total-capital ratio is less than 1.00. Question 38. Capital Financial Co. ("CFC") needs more capital to fund an upooming investment. CFC does not want to give up any equity, use a single lender, or enter into a secured debt obligation. Which of the following would be the best choice for CFC to do to raise the money it needs? (A) Issue convertible notes (B) Issue debentures (C) Spread the news that CFC wants to be acquired (D) Issue bonds (E) Obtain a syndicated loan using one of its investments as collateral Question 39. SalesGuru Corp. ("SGC") is a private company that provides consulting services to olhar businesses. SGC uses an innovative model In its services and there are few comparable companies in the relevant market. SGC's balance shoet primarily reflocts intangible assets. If you want to determine SGC's value, which approach would bo bost to use? (A) A market approach (B) An asset approach (C) An income approach (D) Eilher (A) or (B) (E) Either (B) or (C)
Transcribed Image Text:Question 37. Total Consolidated, Inc. (TCI") accepted a commercial loan two years ago. The loan agroement Includes the following provision: Borrower shall maintain at all times a Consolidated Total Debt to Capital Ratio, as of the last day of oach fiscal quarter and calculated on a Consolidated basis for the four fiscal quartors most recently ended, equal to or loss than 1.00. Currently, TCI has $10,000,000 in total assets and $11,500,000 in total liabilities, including $6,000,000 in total debt. TCI has never missed an interest payment under the loan agreement. Is TCI currently in default? (A) Yes, because TCI breached its minimum net worth requirement. (B) No, because TCI never missed an Interest payment. (C) No, because TCl's debt-to-equity ratio is less than 1.00. (D) Yes, because TCrs debl-to-total-capital ratio is greater than 1.00. (E) No, because TCI's debt-to-total-capital ratio is less than 1.00. Question 38. Capital Financial Co. ("CFC") needs more capital to fund an upooming investment. CFC does not want to give up any equity, use a single lender, or enter into a secured debt obligation. Which of the following would be the best choice for CFC to do to raise the money it needs? (A) Issue convertible notes (B) Issue debentures (C) Spread the news that CFC wants to be acquired (D) Issue bonds (E) Obtain a syndicated loan using one of its investments as collateral Question 39. SalesGuru Corp. ("SGC") is a private company that provides consulting services to olhar businesses. SGC uses an innovative model In its services and there are few comparable companies in the relevant market. SGC's balance shoet primarily reflocts intangible assets. If you want to determine SGC's value, which approach would bo bost to use? (A) A market approach (B) An asset approach (C) An income approach (D) Eilher (A) or (B) (E) Either (B) or (C)
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