For the next 30 days, the bondholders of Sound Effects have the option of exchanging their...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
For the next 30 days, the bondholders of Sound Effects have the option of exchanging their bonds for common shares of the firm's stock. As a result of these exchanges, you should expect the firm's debt-equity ratio to and the stock price to Multiple Choice O O O O decrease; decrease decrease, remain constant decrease, increase increase, increase increase, remain constant Of the following five U.S. industries, which one tends to have the highest level of debt as a percentage of the market value of debt plus equity? Multiple Choice Electric utilities Airlines Fabric apparel Drugs Steel works In general, U.S. firms: Multiple Choice O O O O tend to overweigh debt in relation to equity. that are highly profitable tend to have lower target debt-equity ratios than unprofitable firms. tend to maintain similar capital structures across all industries. tend to maximize the use of every dollar of the tax benefits of debt. that are family-owned tend to have very low levels of debt. Rachel owns 100 percent of a gift shop with an equity value of $150,000. If she keeps the shop open 5 days a week, EBIT is $75,000. If the shop remains open 6 days a week, EBIT increases to $92,000 annually. Rachel needs an additional $50,000 which she can raise today by either selling stock or issuing debt at an interest rate of 7 percent. The principal amount would be repaid in equal annual payments at the end of the next five years. Ignore taxes. What will be the cash flow for the next year to Rachel if she issues stock to another individual, remains open 5 days a week, and distributes all the residual cash flow to the shareholders? Multiple Choice O$92,000 O $61,333 O $69,000 $42.000 $56.250 27 For the next 30 days, the bondholders of Sound Effects have the option of exchanging their bonds for common shares of the firm's stock. As a result of these exchanges, you should expect the firm's debt-equity ratio to and the stock price to Multiple Choice O O O O decrease; decrease decrease, remain constant decrease, increase increase, increase increase, remain constant Of the following five U.S. industries, which one tends to have the highest level of debt as a percentage of the market value of debt plus equity? Multiple Choice Electric utilities Airlines Fabric apparel Drugs Steel works In general, U.S. firms: Multiple Choice O O O O tend to overweigh debt in relation to equity. that are highly profitable tend to have lower target debt-equity ratios than unprofitable firms. tend to maintain similar capital structures across all industries. tend to maximize the use of every dollar of the tax benefits of debt. that are family-owned tend to have very low levels of debt. Rachel owns 100 percent of a gift shop with an equity value of $150,000. If she keeps the shop open 5 days a week, EBIT is $75,000. If the shop remains open 6 days a week, EBIT increases to $92,000 annually. Rachel needs an additional $50,000 which she can raise today by either selling stock or issuing debt at an interest rate of 7 percent. The principal amount would be repaid in equal annual payments at the end of the next five years. Ignore taxes. What will be the cash flow for the next year to Rachel if she issues stock to another individual, remains open 5 days a week, and distributes all the residual cash flow to the shareholders? Multiple Choice O$92,000 O $61,333 O $69,000 $42.000 $56.250 27
Expert Answer:
Answer rating: 100% (QA)
Question 1 decrease increase The firms debtequity ratio will decrease because the firm will have les... View the full answer
Related Book For
International Financial Management
ISBN: 978-0132162760
2nd edition
Authors: Geert Bekaert, Robert J. Hodrick
Posted Date:
Students also viewed these accounting questions
-
Multiple Choice Questions 1. Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as: A) Convertible bonds. B) Sinking fund bonds....
-
Multiple Choice Questions 1. McKinley, Inc., owns 100 percent of Jackson Companys 45,000 voting shares. On June 30, McKinleys internal accounting records show a $192,000 equity method adjusted...
-
Multiple Choice Questions 1. Bond carrying value equals Bonds Payable a. Minus Premium on Bonds Payable. b. Plus Discount on Bonds Payable. c. Minus Discount on Bonds Payable. d. Plus Premium on...
-
Evaluate Lim- X-0 b) Evaluate Lim t-1 4 3 10x3-8x4+2x3 c) Evaluate Lim 2 2 15x4+3x3-5x 2t +21 +5t+5 t+t-71-7 -4 5m +4m +18m m 6m + 4m-6 If lim [x -f(x)] = 2, use the Rules of Limits to evaluate...
-
What are the potential benefits and a drawback of a virtual organization?
-
Jason and Mary Wells, friends of yours, were married on December 30, 2014. They know you are studying taxes and have come to you with a question concerning their filing status. Jason and Mary would...
-
Order the capital budgeting process (Learning Objective 1) Place the following activities in sequence to illustrate the capital budgeting process: a. Budget capital investments b. Project...
-
Knife Edge Company purchased tool sharpening equipment on July 1, 2010, for $16,200. The equipment was expected to have a useful life of three years and a residual value of $900. Instruction...
-
Juniper Design Limited of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $ 4 6 0 , 0 0 0 on...
-
The motorcyclist travels with constant velocity along a straight, horizontal, banked road. If he aligns his bike so that the tires are perpendicular to the road at A, determine the frictional force...
-
What is the first ionization energy of potassium given the following data? K(g) + Br (g) -> K+Br-(g) E(rxn)=-0.536 aJ EA1 bromine = -0.540 aJ ionic radius of K+ = 138 pm ionic radius of Br-= 196pm
-
You are designing a high-availability solution for an Azure SQL deployment. You need to recommend an Azure SQL deployment option that minimizes how long it takes to perform a database backup. Which...
-
In January 2022, Carol paid $5,000 to take courses for her Master in Business Administration. Carol is single with modified AGI of $48,000. What is the amount she can claim as a lifetime learning...
-
Difference between actual factory overhead cost and applied factory overhead are known as a variance. Where the applied cost is greater than the actual cost, it is favorable variance or over applied...
-
Arrive at the following with various measures of perspectives corresponding with BSC: (I) Operating ratio was increased to 60% from 52% in current fiscal year (II) Training for employees 7 to 12%...
-
BCW Co. adds material at the start to its production process and has the following information available for November: Beginning Work in Process Inventory (40% complete as to conversion) Started this...
-
On behalf of PS Music, Peyton signed a contact with a local radio station, KXMD , ? ? to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jocke
-
The text defined intrinsic value as the value of an asset given a hypothetically complete understanding of the assets investment characteristics. Discuss why hypothetically is included in the...
-
What is a credit default swap? What happens in the event of default?
-
What are growth options? Provide an example of one in an international context.
-
In December 1994, a major earthquake rocked Kobe, Japan, destroying the housing stock of more than 300,000 people and ruining bridges, highways, and railroad tracks. What impact, if any, do you think...
-
According to the 2010 Wells Report, the most costly form of fraud was: a. Asset misappropriations b. Fraudulent disbursements c. Check tampering d. Fraudulent financial statements e. Bribery and...
-
Charles Moon, the managing director of your client Neptune plc, is negotiating with a view to Neptune plc acquiring the entire share capital of Sirius Group Ltd ('Sirius'). He has informed you that...
-
The valuation of unlisted shares is highly subjective, especially when the object is to fix a fair price for acquisition by the company or by the owner's fellow-shareholders. You are required (a) to...
Study smarter with the SolutionInn App