NORTHCENTRAL UNIVERSITY
ASSIGNMENT COVER SHEET
Student: ODEDOYIN ABEL
THIS FORM MUST BE COMPLETELY FILLED IN
Follow these procedures: If requested by your instructor, please include an assignment cove
NORTHCENTRAL UNIVERSITY
ASSIGNMENT COVER SHEET
Student: ODEDOYIN ABEL
THIS FORM MUST BE COMPLETELY FILLED IN
Follow these procedures: If requested by your instructor, please include an assignment cove
CHAPTER 21 3407
The aftertax cost of debt for the lessee is:
Aftertax debt cost = .09(1 .25) = .0675
Using all of this information, we can calculate the maximum pretax lease payment for the lessee as:
3-412 SOLUTIONS
Year 0 Year I Year 2 Year 3 Year 4 Year 5
Aftertax sayings $6,600 $6,600 $6,600 $6,600 $6,600
Purchase -$75,000
Dep. tax shield $5,100 $5,100 $5,100 $5,100 $5,100
Net cash
3-400 SOLUTIONS
So. we invest about 68 percent of our money in Bond 1, and about 32 percent in Bond 3. This
combination of bonds should have the same value as the callable bond, excluding the value of
15.
16.
CHAPTER 19 13391
After exercise, the value of the portfolio will be the new number of shares time the errrights
price, less the subscription price paid. Under a, the investor gets 2 new shares
CHAPTER 22
OPTIONS AND CORPORATE FINANCE:
BASIC CONCEPTS
Answers to Concept Questions
1.
A call option confers the right, without the obligation, to buy an asset at a given price on or before a
given
CHAPTER 21
LEASING
Answers to Concepts Review and Critical Thinking Questions
1.
Some key differences are: (1) Lease payments are fully tax-deductible, but only the interest portion
of the loan is; (2
3-398 SOLUTIONS
c. To the company. the value of the call provision will be given by the difference between the
value of an outstanding, non-callable bond and the call provision. So, the value of a non
CHAPTER 19 13387
Assuming the PE remains constant, the new share price will be:
a1 = (P/E)u(EPsl) = 33.33($1.45) = $48.29
The current market-to-book ratio is:
Current market-to-book = cfw_850/840 = 1.
13-386 SOLUTIONS
If the new shares are issued at $40, the share price after the issue will be:
P _ $400,000 + 5,000($40)
10,000 + 5,000
P = $40.00
If the new shares are issued at $20, the share price
3-408 SOLUTIONS
b. To generalize the result from part a:
Let T1 denote the lessors tax rate.
Let T; denote the lessees tax rate.
Let P denote the purchase price of the asset.
Let D equal the annual de
B-410 SOLUTIONS
16.
Next, we can calculate the finance charge, which is the net capitalized cost plus the residual yalue,
times the lease factor, or:
Finance charge = ($38,450 + 20,400)(0.00385)
Finan
3-394 SOLUTIONS
10.
11.
12.
13.
14.
15.
The statement is true. In an efficient market, the callable bonds will be sold at a lower price than that
of the non-callable bonds, other things being equal. T
CHAPTER 20 13397
The price of the bond today is the present value of the expected price in one year. So, the price
of the bond in one year if interest rates increase will be:
P1 = $968.89
If interest
13390 SOLUTIONS
The subscription price is the amount raised divided by the number of number of new shares
offered, or:
Subscription price = $2,000,000 / 500,000
Subscription price = $4
And the value o
17.
CHAPTER 21 13411
So, the NAL with the loan payments is:
NAL = 0 - $22.4s7.59/1.052 $3,846.24/10522 + $16,236.42/10523 + $38,029.68/10524
NAL = $20,137.17
The NAL is the same because the present va
6!.
CHAPTER 21 153405
Since the lessee has an effective tax rate of zero, there is no depreciation tax shield foregone.
Also, the aftertax lease payment is the same as the pretax payment, and the afte
3-396 SOLUTIONS
b. If the bond is callable, then the bond value will be less than the amount computed in part a. If
the bond price rises above the call price, the company will call it. Therefore, bond
CHAPTER 20 13395
Solutions to Questions and Problems
NOTE: All end-cf-chapter problems were solved using a spreadsheet. Many problems require multiple
steps. Due to space and readability constraints,
13.
14.
1.
1.
CHAPTER 19 3389
Assume you hold three shares of the companys stock. The value of your holdings before you
exercise your rights is:
Value of holdings = 3($45)
Value of holdings = $135
Whe
NORTHCENTRAL
UNIVERSITY
ASSIGNMENT COVER
FIN5013-8 ACTIVITY 8
SHEET
ODEDOYIN ABEL
SCHOOL OF BUSINESS
AND TECHNOLOGY
08/3/2014
INTRODUCTION
Buffett is considered to be the
most successful investor of t
NORTHCENTRAL UNIVERSITY
ASSIGNMENT COVER SHEET
Student: ODEDOYIN ABEL
THIS FORM MUST BE COMPLETELY FILLED IN
Follow these procedures: If requested by your instructor, please include an assignment cove
NORTHCENTRAL
UNIVERSITY
ASSIGNMENT COVER
FIN5013-8 ACTIVITY 1
SHEET
ODEDOYIN ABEL
SCHOOL OF BUSINESS
AND TECHNOLOGY
06/14/2014
INTRODUCTION
Investment can be defined
as the current commitment of
money
NORTHCENTRAL UNIVERSITY
ASSIGNMENT COVER SHEET
Student: ODEDOYIN ABEL
THIS FORM MUST BE COMPLETELY FILLED IN
Follow these procedures: If requested by your instructor, please include an assignment cove
NORTHCENTRAL UNIVERSITY
ASSIGNMENT COVER SHEET
Student: ODEDOYIN ABEL
THIS FORM MUST BE COMPLETELY FILLED IN
Follow these procedures: If requested by your instructor, please include an assignment cov
CHAPTER 22 3415
17. Rearranging the put-call parity formula, we get: S PV(E) = C P. If the call and the put have the
same price, we know C P = 0. This must mean the stock price is equal to the present
3-402 SOLUTIONS
10.
11.
12.
4. Renewal options should be reasonable and based on the fair market value of the asset at
renewal time. This indicates that the lease is for legitimate business purposes,
CHAPTER 21 13409
a. The incremental cash ows from leasing the machine are the lease payments, the tax savings on
the lease, the lost depreciation tax shield, and the saved purchase price of the machin
CHAPTER 20 13399
Note that the gain can be calculated using the pretax or aftertax cost of debt. If we calculate the gain
using the aftertax cost of debt, we find:
Aftertax gain = $75,000,000[.08(l .3
13-388 SOLUTIONS
Assuming the PE remains constant, the new stock price will be:
P1 = 2.178($32.61) = $71.01
The current book value per share and the new book value per share are:
BVPSD = TED/sharesu 2
B-404 SOLUTIONS
5.
We already calculated the breakeven lease payment for the lessor in Problem 3. Since the assumption
about the lessor concerning the tax rate have not changed. So, the lessor breaks
CHAPTER 19 13385
The company received $97.7 million from the stock offering. Now we can calculate the direct costs.
Part of the direct costs are given in the problem, but the company also had to pay t
CHAPTER 21 153403
So, the total cash ows from leasing are:
OCF = $262,500 + 581,750 = $844,250
The aftertax cost of debt is:
Aftertax debt cost 2 .08(1 .35) = .052
Using all of this information, we ca
3-406 SOLUTIONS
10.
11.
12.
To find the maximum payment, we find where the NAL is equal to zero, and solve for the payment.
Using X to represent the maximum payment:
NAL = 0 = $6,000,000 X(l .0594)(PV