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Who would gain or lose from the following maneuvers?

Who would gain or lose from the following maneuvers?

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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Let's go back to the Double-R Nutting Company. Suppose that Double-R's bonds have a face value of $61. Its current market-value balance sheet is: Assets Book-Value Balance Sheet Liabilities and Equity Net working capital Fixed assets $ 75 Bonds outstanding $ 80 65 Common stock 60 Total assets $ 140 Total liabilities and shareholders' equity $ 140 Who would gain or lose from the following maneuvers? a. Double-R pays a $65 cash dividend. b. Double-R halts operations, sells its fixed assets for $17, and converts net working capital into $75 cash. It invests its $92 in Treasury bills. c. Double-R encounters an investment opportunity requiring a $65 initial investment with NPV = $0. It borrows $65 to finance the project by issuing more bonds with the same security, seniority, and so on, as the existing bonds. d. Double-R finances the investment opportunity in part (c) by issuing more common stock. Stockholders a. b. C. d. Bondholders
Transcribed Image Text:Let's go back to the Double-R Nutting Company. Suppose that Double-R's bonds have a face value of $61. Its current market-value balance sheet is: Assets Book-Value Balance Sheet Liabilities and Equity Net working capital Fixed assets $ 75 Bonds outstanding $ 80 65 Common stock 60 Total assets $ 140 Total liabilities and shareholders' equity $ 140 Who would gain or lose from the following maneuvers? a. Double-R pays a $65 cash dividend. b. Double-R halts operations, sells its fixed assets for $17, and converts net working capital into $75 cash. It invests its $92 in Treasury bills. c. Double-R encounters an investment opportunity requiring a $65 initial investment with NPV = $0. It borrows $65 to finance the project by issuing more bonds with the same security, seniority, and so on, as the existing bonds. d. Double-R finances the investment opportunity in part (c) by issuing more common stock. Stockholders a. b. C. d. Bondholders
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