After completing their degree at UTRGV in 1992, Jorge Lopez, Finance Major and James Marcos, IT major pursued their dream of launching a computer games design company. Early 1993, the friends started preparing Marcos house garage to become the first location of their company, Digital Studios partnership. Throughout the years, Digital Studios passed through several successes and failures. Within the period 1993-1996, Digital Studios exploded significantly with regard to sales and reputation. They specialized in producing and designing kids games based on animation and cartoon characters. Early 1997, Digital Studios encountered a hard to reject opportunity. Disney Inc. was searching for a small company to partnership with in order to produce a computer game for their new star Hercules. Digital Studios did not have enough resources and capital to undertake this opportunity. However, with the unbelievably growing IT industry towards late 1990s, the friends immediately thought of going public. It is May 1st 1997, the most recent value estimate for Digital Studios is $20 Million. The company is going to be incorporated and part of its equity is going to be sold to the public. The friends decided to keep 60% of the firms voting rights. However, to raise the fund required to undertake Disneys opportunity, the company had to sell 80% of its equity to the public. The underwriter proposed to register two types of shares to accommodate their request, Class A to be issued to the public and Class B to be issued to the founders. The company is going to issue 20 million shares in total.

7) in 2007, Mr. David an investor and one of Digital Studios bondholders wanted to sell his bonds that he acquired back in 1997. What would be the current market price for the bond assuming the following term structure of similar risk bonds? Time to maturity YTM 5 6% 10 8% 15 10% a) $ 742.39 b) $ 539.16 c) $ 806.96 d) $ 957.35

10) Mr. David is 35 years old and wants to save for his retirement. He decided to save half the money that he got from selling his bonds at a portfolio that earns 3.5 %. How much will he have in his retirement account when he turns 60? a) $ 1,131,225.11 b) $ 877,232.99 c) $ 794,265.93 d) $ 953,517.36

12) Now it is 2008, the whole market is struggling to overcome the financial crisis. Digital studios decided to adopt a constant dividends policy. The management announced that it is going to pay $ 5 annual dividends indefinitely. What is the stock price if the required rate of return is 12%? a) $ 55.56 b) $ 83.33 c) $ 41.67 d) $ 166.67