SU-Final 5880-stu-15e-2.xlsx

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Name______________________________________ Final Examination FINC 5880 Session 9 Question 1. 10 points) Both Biondo and Cramer are large public corporations with subsidiaries th Biondo uses a centralized approach and makes most of the decisions for its subsidiaries. Cramer approach and its subsidiaries make many of their own decisions. a. Would the agency problem be more pronounced for Biondo or Cramer? Explain. b. Would agency costs likely be higher for Biondo or Cramer? Why? c. Discuss a major advantage and a major disadvantage to a centralized approach such as Biondo us d. Discuss a major advantage and a major disadvantage to a decentralized approach such as Crame e. Which is better, a centralized or decentralized approach? Explain. A B C D E 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37
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hroughout the world. uses a decentralized ses. er uses. F G 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37
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Name_______________________________________ Final Examination FINC 5880 Session 9 Current Balance Sheet Total Assets $6,400,000 Alternative 1: Common stock $20 # new shares 400,000 Par value per share $1 Alternative 2: Debentures 12% Exercise price per warrant $30 # bonds to raise 4M 8,000 # new shares 200,000 warrants per bond 25 New money raised 6,000,000 Addition to par 200,000 Additional paid-in capital 5,800,000 Question 2. (20 points) Conrad Corporation plans to raise $8 million to pay off its existing sh increase total assets by $5,600,000. The bank loan bears an interest rate of 12 percent. The 4,000,000 shares of common stock and wishes to maintain control of the company. The comp information is shown below. The company is considering two alternatives to raise the $8 million: (1) sell common stock at coupon, each $1,000 bond carrying 25 warrants to buy common stock at $20 per share.
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