Happy Harry Hoskins and Crabby Cynthia Crowders are organizing Red Lodge Metals Unlimited, Inc., to undertake a high risk gold mining venture in Canada. Mr. Hoskins and Ms.Crowders tentatively plan to request authorization for 400,000,000 shares of common stock to be sold to the general public.Mr. Hoskins and Ms. Crowders have decided to establish par value at $0.03 per share in order to appeal to a wide variety of potential investors. They believe that investorswould be more willing to invest in a company if investors received a large quantity of shares for what might appear to be a "bargain" price.Discussion:Are Mr. Hoskins and Ms. Crowders acting ethically? Please discuss.

Ethics refers to the moral values which state the process of performing the work in an effective as…

Answered: Happy Harry Hoskins and Crabby Cynthia…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 11P

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Lou Hoskins and Shirley Crothers are organizing Red Lodge Metals Unlimited Inc. to undertake a high-risk gold-mining venture in Canada. Lou and Shirley tentatively plan to request authorization for 400,000,000 shares of common stock to be sold to the general public. Lou and Shirley have decided to establish par of $0.03 per share in order to appeal to a wide variety of potential investors. Lou and Shirley believe that investors wouldbe more willing to invest in the company if they received a large quantity of shares for what might appear to be a “bargain” price.Discuss whether Lou and Shirley are behaving in a professional manner.
Lou Hoskins and Shirley Crothers are organizing Red Lodge Metals Unlimited Inc. to undertake a high-risk gold mining venture in Canada. Lou and Shirley tentatively plan to request authorization for 400,000,000 shares of common stock to be sold to the general public for $35 per share. Lou and Shirley have decided to establish par of $0.03 per share in order to appeal to a wide variety of potential investors. Lou and Shirley believe that investors would be more willing to invest in the company if they received a large quantity of shares for what might appear to be a “bargain” price. Is the $0.03 a fair par value? Does it surprise you that Lou and Shirley would assign a $0.03 par value? Discuss whether Lou and Shirley are behaving in a professional manner.
Bruce Wayne is going public with his new business. Berkman Investment Bank will be his banker and is doing a best efforts sale with a 3.8% commission fee. The SEC has authorized Wayne 4,790,000 shares for this issue. He plans to keep 1,180,000 shares for himself, hold back an additional 240,000 shares according to the green-shoe provision for Berkman Investment Bank, pay off Venture Capitalists with 530,000 shares, and sell the remaining shares at $16.46 a share. Given the bids at the auction distribute the shares to all bidders using a pro-rata share procedure, and assume Berkman Investment Bank takes its green-shoe shares. What is the total cash flow to Wayne after the sale? To Berkman Investment Bank? Bidder Quantity Bid Gotham Pension Fund 1,990,000 Clark Kent Investors 1,250,000 Central City Insurance 610,000 Arthur Curry 440,000 Barry Allen 350,000 Total 4,640,000
Safari Ltd is a tour and travel company that wants to expand its business by opening a new branch in Nakuru . The finance manager has advised the CEO to consider an issue of 8% irredeemable preference shares whose par value is Sh 80 at an issue price of Sh76. What is the cost of this preference shares ?
WAC Inc. is going public and issuing 500,000 shares of common stock. The capital raised in the IPO will fund the company’s proposed expansion. A Dutch auction is used to allocate shares in the WAC IPO. The following table shows the number of shares requested by potential investors in each row. Bids Number of Shares Requested Price per Share Bidder # 1 50,000 $62 Bidder # 2 100,000 60 Bidder # 3 150,000 58 Bidder # 4 200,000 56 Bidder # 5 250,000 54 Bidder # 6 300,000 52 What should be the firm’s IPO offer price? $57 $56 $58 $59
Don’s Captain Morgan, Inc. needs to raise $12.70 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $20.60 per share and Don’s will receive $16.75 per share. Calculate the underwriter’s spread per share on the issue. (Round your answer to 2 decimal places.) How many shares of stock will Don’s need to sell in order to receive the $12.70 million it needs? (Round your answer to the nearest whole number.)
Your client, Great Value Hardware Stores, has come to you for assistance in evaluating an opportunity to purchase a controlling interest in a hardware store in a neighboring city. The store under consideration is a closely held family corporation. Owners of 60% of the shares are willing to sell you the 60% interest, 30,000 common stock shares in exchange for 7,500 of Great Value shares, which have a fair value of $40 each and a par value of $10 each.Your client sees this as a good opportunity to enter a new market. The controller of Great Value knows, however, that all is not well with the store being considered. The store, Al’s Hardware, has not kept pace with the market and has been losing money. It also has a major lawsuit against it stemming from alleged faulty electrical components it supplied that caused a fire. The store is not insured for the loss. Legal counsel advises that the store will likely pay $300,000 in damages.The following balance sheet was provided by Al’s Hardware…
Several investors are in the process of organizing a new company. The investors believe that P2,600,000 will be needed to finance the new company’s operation, and they are considering three methods of raising this amount of money. Method A: All P2,600,000 would be obtained through issue of common stock Method B: P 1,300,000 would be obtained through issue of common stock and the other P1,300,000 would be obtained through issue of P100 par value, 12% preferred stock. Method C: P 1,300,000 would be obtained through issue of common stock, and the other P 1,300,000 would be obtained through issue of bonds carrying an interest ate of 12%. The investors organizing the new company are confident that it can earn P520,000 each year before interest and taxes. The tax rate will be 30%. Required: 1. Assuming that the investors are correct in their earnings estimate, compute the net income that would go to the common stockholders under each of the three financing methods listed above. 2. Using the…
Fishwick Enterprises has 201,500 shares outstanding, half of which are owned by Jennifer Fishwick and half by her cousin. The two cousins have decided to sell 101,000 shares in an IPO. Half of these shares would be issued by the company to raise new cash, and half would be shares that are currently held by Jennifer Fishwick. Suppose that the shares are sold at an issue price of $50 but rise to $80 by the end of the first day’s trading. Suppose also that investors would have been prepared to buy the issue at $80. a. Percentage of ownership 20 % b. Stock value $4,020,000 c. Number of shares 63,125 d. Total wealth ?? million e. Cost of underpricing shares ?? million
Company AB has a market value of GH¢50 million. Company CD has a market value of GH¢200 million. YY has determined that if it combines resources with AB, will be worth GH¢25 million today. On this basis, CD makes an offer to buy AB. If CD makes a cash offer of GH¢65 million for all the shares of AB, what is the cost of this purchase to CD? Suppose CD has issued 100 of its shares to its shareholders and is considering issuing 30 shares to the shareholders of AB, what is the cost of the share offer?
Cheng/Hamm Incorporated developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2024, 23 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date – $30 per share ($150 per option). Options vest on January 1, 2028. They cannot be exercised before that date and will expire on December 31, 2030. The fair value of the 23 million options, estimated by an appropriate option pricing model, is $49 per option. Ignore income tax. Cheng/Hamm's compensation expense in 2024 for these stock options was: Note: Round your answer to nearest whole dollar amount.
Joyce has never invested in shares before. She has come to you, as a prospective finance graduate, for some advice. In your conversations with Joyce, you have determined her Required Rate of Return (RRR) to be 8.75%. d) Joyce decided to buy 200 000 shares in GGG Ltd., giving her 2% ownership in the company (GGG Ltd. currently has 10 000 000 issued shares). One year later, GGG Ltd. announces a private placement of a further 10,000,000 shares, in order to raise funds for their new venture: Project COVID. (i) Describe two features of a private placement of shares. (ii) What is the major disadvantage to Joyce of the above private placement? Include in your answer the effect on her ownership. (iii) Identify one other source of equity funding Joyce, as a shareholder, would prefer. Justify your choice.

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