Principal of Finance Accounting Worksheet

8- The Burma Hat Company’s warrant is trading for

$10.20

. The warrant carries the option to purchase two shares of common stock for $48. What is the speculative premium if the stock price is $51.30?

$3.60

$3.30

$6.60

$10.20

9- How much must you invest today at 10% interest in order to see your investment grow to $12,000 in 3 years?

$7,320

$9,012

$17,052

$8,532

10- Firm X has a tax rate of 29%. The price of its new preferred stock is $65 and its flotation cost is $2.00. The cost of new preferred stock is 12%. What is the firm’s dividend? (Round your answer to 2 decimal places.)

$7.56

$9.01

$6.21

$9.71

11- Ambrin Corp. expects to receive $5,000 per year for 13 years and $6,500 per year for the next 13 years. What is the present value of this 26 year cash flow? Use an 9% discount rate. Use

Appendix D

 and Appendix B to calculate the answer. (Round your intermediate calculations to the nearest dollar value.)

$53,300

$86,101

none of these

$64,531

12- The “floor” or pure bond value of a convertible bond is found by

multiplying the price of the firm’s common stock by the conversion ratio and adding the present value of the bond’s face value.

adding the present value of the bond’s interest payments to the present value of the bond’s face value.

multiplying the bond’s conversion premium by the price of the firm’s common stock

multiplying the price of the firm’s common stock by the conversion ratio.

13- Which of the following characteristics are drawbacks of convertible bonds?

Conversion may be forced on the bondholder by call provisions on the convertible bond.

Downside protection has minimal effectiveness if the bond is bought at a large premium over floor value.

Interest rates on the debt-instrument part of a convertible bond are frequently below market interest rates.

All of these options are drawbacks of convertibles.

14- Which of the following is true?

As the price of common stock increases, the conversion value and the floor price increase.

As the price of common stock increases, the market price of a convertible bond and the conversion value increase.

Two of the options are true.

As the price of common stock increases, the market price of a convertible bond and the conversion premium increase.

15- A firm’s preferred stock pays an annual dividend of $2, and the stock sells for $71. Flotation costs for new issuances of preferred stock are 7% of the stock value. What is the after-tax cost of preferred stock if the firm’s tax rate is 35%? (Round your answer to 2 decimal places.)

1.68

4.48

3.03

5.18