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Chapter 5: 11DQ (page 524)
How does the bond rating affect the interest rate paid by a corporation on its bonds?
Bond ratings impact the interest paid by a corporation in a specific manner. The interest rate determination is dependent upon the level of rating. High-rated bonds carry less interest and vice versa.
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Discuss the relationship between the coupon rate (original interest rate at time of issue) on a bond and its security provisions. (LO16-1)
The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows:
In \( millions | In \) millions | ||
Current assets | \(70 | Current liabilities | \)30 |
Fixed assets | \(70 | Long-term liabilities | \)30 |
Total liabilities | \(60 | ||
Stockholder鈥檚 equity | \)80 | ||
Total assets | \(140 | Total stockholder鈥檚 equity and liabilities | \)140 |
The footnotes stated that the company had $14 million in annual capital lease obligations for the next 20 years.
f. Comment on management鈥檚 perception of market efficiency (the viewpoint of the financial officer).
Corporate debt has been expanding very dramatically in the last three decades. What has been the impact on interest coverage, particularly since 1977? (LO16-1)
Kevin鈥檚 Bacon Company Inc. has earnings of \(9 million with 2,100,000 shares outstanding before a public distribution. Seven hundred thousand shares will be included in the sale, of which 400,000 are new corporate shares, and 300,000 are shares currently owned by Ann Fry, the founder and CEO. The 300,000 shares that Ann is selling are referred to as a secondary offering, and all proceeds will go to her.
The net price from the offering will be \)16.50, and the corporate proceeds are expected to produce $1.8 million in corporate earnings.
a. What were the corporation鈥檚 earnings per share before the offering?
b. What are the corporation鈥檚 earnings per share expected to be after the offering?
What was the purpose of the Sarbanes-Oxley Act of 2002?
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