Rights [LO4] Red Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $51 to $49.30 ($51 is the rights-on price; $49.30 is the ex-rights price, also known as the when-issued price). The company is seeking $17 million in additional funds with a per-share subscription price equal to $35. How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.)
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Fundamentals of Corporate Finance, 11th Edition (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
- V3. Which of the following statements about IPO is correct? O In a market without agency problem, Dutch auction is the worst among the three IPO methods in terms of finding out the best reservation price of the IPO shares • In a firm commitment cash offer, the underwriter would buy the whole issue from the issuer, and then sell the issue to the market. O Best efforts cash offer is the most popular IPO method in the US market. • In the best efforts cash offer, a firm would have to continue the issuance even if the demand does not meet their expectation.arrow_forward45. Which of the following is an example of a capital market instrument? a. Commercial Paper. b. Treasury bills. c. Preferred stock. d. Banker’s acceptances. 46. Which of the following ratios will increase as a firm uses more financial leverage? a. The debt-to-equity ratio b. The inventory turnover c. The time-interest-earned ratio 47 You need $2,000 to buy a new stereo for your car. If you have $800 to invest at 5 percent compounded annually, how long will you have to wait to buy the stereo? a. 18.78 years. b. 14.58 years. c. 8.42 years. d. 6.58 years.arrow_forwardD6 The life cycle theory of dividend payment posits that a. Mature companies tend to adopt the residual dividend policy b. Growth companies tend to do a lot of share repurchases c. Mature companies tend to adopt the constant or the stable dividend payout policy d. Mature companies tend to do more share repurchases e. Young growth companies tend to adopt the residual dividend policyarrow_forward
- 61. Suppose a new company decides to raise its initial $200 million ofcapital as $100 million of common equity and $100 million of long-termdebt. By an iron-clad provision in its charter, the company can neverborrow any more money. Which of the following statements is mostcorrect?a. If the debt were raised by issuing $50 million of debentures and $50million of first mortgage bonds, we could be absolutely certain thatthe firm’s total interest expense would be lower than if the debtwere raised by issuing $100 million of debentures.b. If the debt were raised by issuing $50 million of debentures and $50million of first mortgage bonds, we could be absolutely certain thatthe firm’s total interest expense would be lower than if the debtwere raised by issuing $100 million of first mortgage bonds.c. The higher the percentage of total debt represented by debentures,the greater the risk of, and hence the interest rate on, thedebentures.d. The higher the percentage of total debt represented by…arrow_forwardCH6 # 1 The ABC Company has a stable dividend policy ($2 per share per year). It also has a policy of not raising new capital from the market. The policy is to invest the available funds after payment of the dividends (excess cash is invested in marketable securities). What does this imply about the use of the present value method of making investment decisions?arrow_forwardP7–15 Common stock value: All growth models You are evaluating the potential purchaseof a small business currently generating $42,500 of after-tax cash flow(D0 = $42,500). On the basis of a review of similar-risk investment opportunities,you must earn an 18% rate of return on the proposed purchase. Because you are relatively uncertain about future cash flows, you decide to estimate the firm’s value using several possible assumptions about the growth rate of cash flows.a. What is the firm’s value if cash flows are expected to grow at an annual rate of0% from now to infinity?b. What is the firm’s value if cash flows are expected to grow at a constant annualrate of 7% from now to infinity?c. What is the firm’s value if cash flows are expected to grow at an annual rate of12% for the first 2 years, followed by a constant annual rate of 7% from year 3to infinity?arrow_forward
- Question 3Nelco Inc. has decided in favour of a capital structuring that involves increasing its existing $80 million in debt to $125 million. The interest rate on debt is 9% and is not expected to change. The firm currently has 10 million shares outstanding and the price per share is $45. If the restructuring is expected to increase the ROE, what is the minimum level of EBIT that Nelco’s management must be expecting. Ignore taxes in your answer.arrow_forward5. A company has £6 million available and three possible projects, none of which are divisible: Project Investment at t0 NPV S £1.75m £0.56m T £2.50m £0.90m U £3.75m £1.30m Which projects should be undertaken in order to maximise shareholder wealth? A S and T B S and U C T and U D S, T and Uarrow_forwardA3)  Time remaining: 00:09:42 Finance Smartworks is considering a potential buyout of Redwords. The manager of Smartworks believes that the value of Redwords will rise by 50% if Smartworks purchases Redwords and changes its management. Redwords is a listed company with 10 million shares outstanding, and its share price is only $15 per share now. Smartworks is going to use a leveraged buyout with an offer of $20 per share to control Redwords. If Smartworks obtains 100% control of Redwords, the share price of Redwords after the leveraged buyout will be closest to: a. $1.00. b. $15.00. c. $20.00. d. $3.00.arrow_forward
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