The houston corp. needs to raise money for an addition

The Houston Corp. needs to raise money for an addition to its plant.

Question 1
The Houston Corp. needs to raise money for an addition to its plant. It will issue 300,000 shares of new common stock. The new shares will be priced at $60 per share with an 8.5% spread on the offer price. Registration costs will be $150,000. Presently Houston Corp has earnings of $3 million and 750,000 shares outstanding.

(a) Compute the potential dilution from this new stock issue.

(b) Compute the net proceeds to Houston Corp.

(c) What rate of return must be earned on the net proceeds so that no dilution of earnings per share occurs?

Question 2
Gray House is issuing bonds paying $105 annually that will mature fifteen years from today. The bond is currently selling for $980.
Calculate:

(a) Coupon Rate

(b) Current Yield

(c) Yield To Maturity

Question 3
The Haavelmo Widget Corporation has just signed an 84-month lease on an asset with an 8-year life. The lessor will retain the property at the end of the lease, and the present value of the minimum lease payments is $250,000. The estimated fair value of the property is $300,000. Is this an operating lease?

a.no
b.yes
c.if the company elects to treat the lease as an operating lease
d.more information is required

Question 4
Private placement of corporate bonds

a.has increased in use as new bond issues increased.
b.are the most popular method of raising debt capital.
c.are more expensive to issue than publicly placed bonds.
d.have lower interest rates than mortgage-backed securities.

Question 5
All of the following are disadvantages of going public except

a.the firm may now become active in mergers and acquisitions.
b.the company must make all information available to the public through filings to the SEC and the state.
c.an erosion in value may take place after the initial offering.
d.there is a high cost associated with going public.

Question 6
Which of the following bonds offers the most security to the bondholder?

a.Junior mortgage bonds
b.Senior mortgage bonds
c.Debenture bond
d.Income bond

Question 7
A “subordinated debenture”

a.must be transferred with the bond to which it is attached.
b.is used mainly by railroad companies and usually specifies equipment as collateral.
c.entitles the bondholder to purchase shares of common stock at a specific price.
d.is an unsecured bond with an inferior claim on assets in the event of liquidation.

Question 8
An investment banker makes money from

a.commissions from buyers.
b.fees from other investment bankers in the syndicate.
c.the spread between issue price and proceeds to the issuer.
d.artificially supporting the stock price during and after the offering.

Question 9
Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 800,000 shares. The shares will be priced at $25 to the public with a 4% spread. The out-of pocket costs will be $450,000. What are the net proceeds to the firm?

a.$18,750,000
b.$19,200,000
c.$18,250,000
d.$19,550,000

Question 10
The market stabilization function usually

a.is performed by the company.
b.lasts six to nine months.
c.provides price support for the stock during the distribution period.
d.is illegal.

Question 11
Corporate debt has

a.increased rapidly since World War II.
b.increased slowly since World War II.
c.held fairly steady over the last forty years.
d.none of the above

Question 12
Zero-coupon bonds

a.provide no annual interest payments.
b.have highly stable prices even with changing interest rates.
c.provide an investor with tax-free income until maturity.
d.two of the above.

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