QUESTION 1 1. 1. The conversion ratio is the ratio that determines how many shares of common stock the investor can secure for each share of preferred stock they own. True False 2 points

QUESTION 2 1. 2. You are the Chief Financial Officer of Oracle Corporation. A number of financial opportunities have been presented and you are looking for the best plan to continue growing your $63 billion market cap. Use theValue Line provided for answering the following questions. Disregard any current information you are familiar with about Oracle when doing this analysis. a) Larry Ellison, Chairman, CEO, and majority stockholder, has just come to you and has suggested a preferred stock offering to allow for continued growth of Oracles wireless networking ideas. What would adding an additional $500 million do to the capital structure of Oracle? Current debt costs 7.5%, equity costs 12.14%, and preferred stock would cost 10.11 percent. Current weights for debt are 3% and for common stock is 97%. Weights would become approximately 3%, 5% for preferred and 92% for common. The wireless internet investment has an internal rate of return of about 22% per year. (10 points) b) Oracle is attempting to purchase Peoplesoft. Peoplesoft is trading at $15.25 per share. Oracle offered $19.50 per share. Given the current price listed, what is the ratio of exchange? (5 points) c) Given the P/E ratio, the book value, and beta considerations, is the stock over-priced, under-priced, or just right? Should they be paying a dividend? What information is not provided that would help with this decision? (10 points) d) IBM has made a tender offer for Oracle of $21.00 per share. What issues should be looked at when considering this offer? (5 points) Path: p Words:0 30 points

QUESTION 3 1. 3. One source of potential conflict between bond and stockholders is the amount of liquidity the company should maintain. True False 2 points

QUESTION 4 1. 4. The prospectus for stock and a bonds covenant agreement are legal documents which describe certain parameters or obligations of the company to holders. True False 2 points

QUESTION 5 1. 5. Financial managers can attempt to manipulate the per share value of their company by buying back shares of their own firms stock. True False 2 points

QUESTION 6 1. 6. It was recommended to have a consistent and upward moving dividend policy if the firm is in the maturity stage of operations. True False 2 points

QUESTION 7 1. 7. The Y axis of the IOS chart should cumulatively add capital. True False 2 points

QUESTION 8 1. 8. A sunk cost has no impact on evaluation of a capital project. True False 2 points

QUESTION 9 1. 9. When using the NPV rule to calculate the value of the potential capital investment, the WACC is used to calculate the time value of money. True False 2 points

QUESTION 10 1. 10. The sale of a manufacturing facility is part of the operating activities portion of the three-part cash flow statement. True False