An investor owns a bond selling for $5,000. This bond can be converted into 50 shares of stock that are currently selling for $82 per share. Should the investor convert his bond into shares? Explain why?
Q1: An investor owns a bond selling for $5,000. This bond can be converted into 50 shares of stock that are currently selling for $82 per share. Should the investor convert his bond into shares? Explain why? [2 Mark]
Q2: What is the Expected return on the assets (Cost of capital ) of a firm with following data. [2 Marks]
Assets Value
100
Debt (D)
40
–
–
Equity (E)
60
Total Asset value
100
Firm Value
100
Expected Return on the debt (rdebt) = 8%
Expected Return on the Equity (requity) = 16%
Q3. How much will a firm receive in net funding from a firm commitment underwriting of 300,000 shares priced to the public at $30 if a 10% underwriting spread has been added to the price paid by the underwriter? Additionally, the firm pays $600,000 in legal fees.[2 Marks]
Q4. Explain the concept of Financial Distress and Financial Slack. Also write the benefits and drawbacks of Financial Slack. [2 Mark]
Q5. What is Underwriter Spread? Explain with example. Write down the steps followed in an IPO Flowchart.[2 Marks]
Requirements: 1200-1600
College of Administrative and Financial Sciences
Assignment 1
Corporate Finance (FIN-201)
Due Date: 07/10/2023 @ 23:59
For Instructor’s Use only
General Instructions – PLEASE READ THEM CAREFULLY
The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Q1: An investor owns a bond selling for $5,000. This bond can be converted into 50 shares of stock that are currently selling for $82 per share. Should the investor convert his bond into shares? Explain why? [2 Mark]
Q2: What is the Expected return on the assets (Cost of capital ) of a firm with following data. [2 Marks]
Expected Return on the debt (rdebt) = 8%
Expected Return on the Equity (requity) = 16%
Q3. How much will a firm receive in net funding from a firm commitment underwriting of 300,000 shares priced to the public at $30 if a 10% underwriting spread has been added to the price paid by the underwriter? Additionally, the firm pays $600,000 in legal fees. [2 Marks]
Q4. Explain the concept of Financial Distress and Financial Slack. Also write the benefits and drawbacks of Financial Slack. [2 Mark]
Q5. What is Underwriter Spread? Explain with example. Write down the steps followed in an IPO Flowchart. [2 Marks]
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