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Chapter 5: 4DQ (page 524)
Discuss the relationship between the coupon rate (original interest rate at time of issue) on a bond and its security provisions. (LO16-1)
The greater protection is given to the bondholders' class, the lower the interest rate.
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Discuss the benefits accruing to a company that is traded in the public securities markets.
Tiger Golf Supplies has $25 million in earnings with 7 million shares outstanding. Its investment banker thinks the stock should trade at a P/E ratio of 31. Assume there is an underwriting spread of 7.8 percent. What should the price to the public be?
What are three forms of corporate securities discussed in the chapter?
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.
c. Compute total debt to total assets on the original and revised balance sheets.
Using the information in Problem 3, assume that American Health Systems鈥� 1,700,000 additional share can only be issued at $18 per share.
a. Assume that American Health Systems can earn 6 percent on the proceeds. Calculate earnings per share.
b. Should the new issue be undertaken based on earnings per share?
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