Videos
a.
To calculate: The rights that Todd Winningham could buy with $4,800 as well as the number of shares he can buy with $4,800 at the rate of $66 per share of Gallagher Tennis Clubs Inc.
Introduction:
Right Shares:
It refers to the shares issued by corporations to their existing stockholders. It is also a type of invitation to existing shareholders for purchasing additional stocks of the company and is also termed as rights issue.
Share Price:
The highest price that an investor is wishes or agree to pay for one share of a company is termed as the share price. It is the current price used for the trading of such shares.
a.
Answer to Problem 14P
Todd Winningham can buy 73 shares and 1,600 rights with $4,800 at the rate of $66 per share of Gallagher Tennis Clubs Inc.
Explanation of Solution
Calculation of the number of rights Todd can buy:
Calculation of the number of shares Todd can buy:
Working Note:
Calculation of the value of one right:
b.
To calculate: The profit on Todd’s investment in the rights if the price of the Gallagher stock rises to $70 per share ex-rights.
Introduction:
Right Shares:
It refers to the shares issued by corporations to their existing stockholders. It is also a type of invitation to existing shareholders for purchasing additional stocks of the company and is also termed as rights issue.
b.
Answer to Problem 14P
The profit on Todd’s investment in the rights is $1,072 if the price of the Gallagher stock rises to $70 per share ex-rights.
Explanation of Solution
Calculation of the total profits on rights:
Working Notes:
Calculation of profit per right:
Calculation of the value per right:
c.
To calculate: The profit on Todd’s investment in the stocks if the price of the Gallagher stock rises to $70 per share ex-rights.
Introduction:
Share Price:
The highest price that an investor is wishes or agree to pay for one share of a company is termed as the share price. It is the current price used for the trading of such shares.
c.
Answer to Problem 14P
The profit on Todd’s investment in the stocks is $292 if the price of the Gallagher stock rises to $70 per share ex-rights.
Explanation of Solution
Calculation of the total profits on shares:
Working Notes:
Calculation of profit per share:
d.
To determine: The effect on Todd’s investment in the rights if the price of the Gallagher stock falls to $40 per share ex-rights instead of rising to $70.
Introduction:
Right Shares:
It refers to the shares issued by corporations to their existing stockholders. It is also a type of invitation to existing shareholders for purchasing additional stocks of the company and is also termed as rights issue.
d.
Answer to Problem 14P
There will be a loss on Todd’s entire investment if the price of the Gallagher stock falls to $40 per share ex-rights instead of rising to $70.
Explanation of Solution
Calculation of the loss on rights:
Working Notes:
Calculation of loss per right:
Calculation of the value of one right:
e.
To determine: The effect on Todd’s investment of the stocks if the price of the Gallagher stock falls to $40 per share ex-rights.
Introduction:
Right Shares:
It refers to the shares issued by corporations to their existing stockholders. It is also a type of invitation to existing shareholders for purchasing additional stocks of the company and is also termed as rights issue.
Share Price:
The highest price that an investor is wishes or agree to pay for one share of a company is termed as the share price. It is the current price used for the trading of such shares.
e.
Answer to Problem 14P
There will be a loss of $1,898 on Todd’s investment in shares if the price of the Gallagher stock falls to $40 per share ex-rights.
Explanation of Solution
Calculation of total loss:
Working Note:
Calculation of loss per share:
Want to see more full solutions like this?
Chapter 17 Solutions
Foundations of Financial Management
- · What does a degree of financial leverage (DFL) of 2.0 indicate? O For every 1 percent change in its EBIT, the firm's EPS will change by 2 percent. O For every 1 percent change in its EBIT, the firm's sales will change by 2 percent. For every 1 percent change in its sales, the firm's EBIT will change by 2 percent. For every 1 percent change in its EPS, the firm's EBIT will change by 0.5 percent. ○ For every 1 percent change in its EPS, the firm's sales will change by 0.5 percent.arrow_forwardDon't used Ai solutionarrow_forwardDani Corporation has 3.4 million shares of common stock outstanding. The current share price is $84.50, and the book value per share is $8.75. The company also has two bond issues outstanding. The first bond issue has a face value of $71 million, a coupon rate of 5.1 percent, and sells for 95.5 percent of par. The second issue has a face value of $43 million, a coupon rate of 5.7 percent and sells for 104.5 percent of par. The first issue matures in 21 years, the second in 9 years. The most recent dividend was $3.98 a the dividend growth rate is 4.1 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company's cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Cost of equity % What is the company's aftertax cost of debt? Note: Do not round intermediate…arrow_forward
- Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Gateway's discount rate is 10.9%. The company plans to continue with one of the two models for the foreseeable future. Based on the costs of each shown here, which should it choose? (Note: dollar amounts are in thousands.) Based on the costs of each model, which should it choose? (Select the best choice below.) OA. Gateway Tours should choose Short and Sweet because the NPV of its costs is smaller. OB. Gateway Tours should choose Old Reliable because it lasts longer. C. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of its costs is smaller. OD. Gateway Tours should choose Old Reliable because the equivalent annual annuity of its costs is smaller. Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Model Year 0 Year 1 Year 2 Year 3 Old Reliable - $201 - $3.9 - $3.9 -$3.9 Year 4 -…arrow_forwardFabulous Fabricators needs to decide how to allocate space in its production facility this year. It is considering the following contracts: a. What are the profitability indexes of the projects? b. What should Fabulous Fabricators do? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Contract A NPV $1.98 million Use of Facility 100% B $1.01 million 57% C $1.49 million 43% Print Done - X ☑arrow_forwardExplain the difference between operating gearing and financial gearing. Identify one likely implication to a company with a high level of gearing.arrow_forward
- You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,100 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: (the equipment has an economic life of 5 years). If your discount rate is 6.5%, what should you do? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 -$40,600 Year 1 -$2,100 Year 2 - $2,100 Year 3 Year 4 Year 5 - $2,100 - $2,100 - $2,100 Print Donearrow_forwardOrchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects: Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project (all cost values are given in millions of dollars). a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? b. Suppose that Orchid currently has 12 research scientists and does not anticipate being able to hire more in the near future. How should Orchid prioritize these projects? Data table D (Click on the following icon in order to copy its contents into a spreadsheet.) Project Number Initial Capital ($) Number of Research NPV ($) Scientists 10 15 15 IV 20 2343 10.1 19.0 22.0 25.0 V 30 12 60.2 Print Done Xarrow_forwardYou are choosing between two projects. The cash flows for the projects are given in the following table ($ million): E a. What are the IRRS of the two projects? b. If your discount rate is 4.8%, what are the NPVS of the two projects? c. Why do IRR and NPV rank the two projects differently? a. What are the IRRS of the two projects? The IRR for project A is %. (Round to one decimal place.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Project AB Year 0 $48 Year 1 $26 $99 $18 Year 2 $19 $38 Print Done Year 3 Year 4 $19 $17 $48 $59 -Xarrow_forward
- Don't used Ai solutionarrow_forwardPlease don't use Ai solutionarrow_forwardPlease don't use Ai solution An appraisal was requested on an office building that contains 100,576 square feet. The appraiser found three sales to compare and gave Sales 1 and 3 most weight in final reconciliation. Sale 2 was given no weight. The subject was 10% superior to Sale 3 but Sale 1 was 15% superior to the subject. The subject was 25% superior to Sale 2. What is the net adjustment to Sale 3? -10%-15% +15%+10%arrow_forward
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT