a.What discount rate should be used to discount the estimated cash flows? (Hint: Use Astros' cost of equity (rsusing Brigham notation or E(Ri) using Ross & Berk notation; i.e., the required return on Astros' stock)to determine the market risk premium since Astros's beta = 1.0 .)

b.What is the dollar value of Cowboys to Astros?

c.Cowboys has 1.1 million common shares outstanding. What is the maximum price per share that Astros should offer for Cowboys?

Issuing Securities to the Public(Ross Ch. 15; Berk Ch. 14; not in Brigham)

1.Define the following terms related to the issuance of public securities:

a.General cash offer

b.Rights offer

c.Registration statement

d.Prospectus

e.Initial public offering

f.Shelf registration

2.Define the following terms related to underwriting.

a.Firm commitment

b.Syndicate

c.Spread

d.Best efforts

3.Rights OfferingsThe Cardinals Corporation has announced a rights offer to raise $30 million for a new journal, theJournal of Financial Excess.This journal will review potential articles after the author pays a non-refundable fee of $5,000.00 per page. The stock currently sells for $48.00 per share, and there are 3,900,000 (3.9 million) shares outstanding.

a.What is themaximum possible subscription price?What is the minimum?

b.If the subscription price is set at $43.00 per share,how many shares must be sold?How many rights will it take to buy one share?

c.What is theex-rights price?What is thevalue of one right?

d.Show how a shareholder with 1,000 shares before the offering and no desire (or money) to buy additional shares isNOT harmed by the rights offer.