Both Alward and Rafter are large public corporations with subsidiaries throughout the world. Alward uses a centralized approach and makes most of the decisions for its subsidiaries. Rafter uses a decentralized approach and its subsidiaries make most of their own decisions. Which of the following is correct?

a. agency costs would be the same for both companies.

b. a decentralized approach is almost always better

c. a centralized approach is almost always better

d. the agency problem would probably be more pronounced for Alward because of a higher probability that subsidiary decisions would conflict with the parent

e. none of the above

Which of the following is normally regarded as being a good reasons to establish an ESOP?

a. To enable the firm to borrow at a below-market interest rate.

b. agency costs would be the same for both companies.

c. To help retain valued employees.

d. All of the above

e. none of the above

McDaniels Company plan to issue 20-year bonds with annual interest payments and with 25 warrants attached. The investment banker estimates that each warrant will have a value of $5.00. A similar straight-debt issue would require a 10% coupon. What coupon rate should be set on the bonds-with-warrants so that the package will sell for $1,000?

a. 9.94%

b. 8.53%

c. 8.83%

d. 4.13%

e. none of the above

Baker, Inc. just sold a bond with 20 warrants attached. The bonds have a 30-year maturity and a annual coupon of 10%, and they were issued at their $1,000 par value. The current yield on similar straight bonds is 12%. What is the implied value of each warrant?

a. $7.47

b. $8.06

c. $0.00

d. $1.00

e. none of the above

Reuth Corporation has 9% convertible debentures that were issued at $1000 par, and currently sell for $750. Each debenture can be converted into 35 shares of common stock. The company's current stock price is $25. What is the conversion value of the bond?

a. $875

b. $965

c. $975

d. $725

e. none of the above

Roth, Inc. issued convertible bond at their $1,000 par value 5 years ago. The bonds currently sell for $1,050. At any time prior to maturity on August 1, 2031, a debenture holder can exchange a bond for 40 shares of common stock. What is the conversion price?

a. $1.25

b. $26.25

c. $25.00

d. Not enough information provided

e. none of the above