SMChap014 - Chapter 14 An Overview of Corporate Financing...

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Chapter 14 - An Overview of Corporate Financing CHAPTER 14 An Overview of Corporate Financing Answers to Problem Sets 1. a. False. Net equity issues have been negative, meaning that share repurchases have been larger than share issues. b. True c. True Est. Time: 01 – 05 2. a. 80 votes b. 10 X 80 = 800 votes. Est. Time: 01 – 05 3. a. Subordinated b. Floating rate c. Convertible d. Warrant e. Common stock; preferred stock Est. Time: 01 – 05 4. a. False. About half of all common stock is held by financial institutions, such as mutual funds, pension funds, and insurance companies. b. True c. False. An investor can buy and sell units of a partnership. . 14-1
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Chapter 14 - An Overview of Corporate Financing Est. Time: 01 – 05 5. One would expect that the voting shares have a higher price because they have an added benefit/responsibility that has value. Est. Time: 01 – 05 6. a. Gross Profits $ 760,000 Interest on Debt 100,000 Earnings before Taxes (EBT) $ 660,000 Tax (at 35%) 231,000 Funds Available to Common Shareholders $ 429,000 b. Gross Profits (EBT) $ 760,000 Tax (at 35%) 266,000 Net Income $ 494,000 Preferred Dividend (8% on $1 million) 80,000 Funds Available to Common Shareholders $ 414,000 Est. Time: 06 – 10 7. a. Less valuable. The option to repay provides value to the borrower.
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