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Chapter 5: 14DQ (page 471)
What was the purpose of the Sarbanes-Oxley Act of 2002?
The purpose of the Sarbanes-Oxley Act of 2002 was to ensure accurate financial reporting.
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Discuss the reason for the differences between underwriting spreads for stocks and bonds.
Midland Corporation has a net income of \(19 million and 4 million shares outstanding. Its common stock is currently selling for \)48 per share. Midland plans to sell common stock to set up a major new production facility with a net cost of \(21,120,000. The production facility will not produce a profit for one year, and then it is expected to earn a 13 percent return on the investment. Stanley Morgan and Co., an investment banking firm, plans to sell the issue to the public for \)44 per share with a spread of 4 percent.
d. Compute the EPS and the price (P/E stays constant) after the new production facility begins to produce a profit.
Explain the role of financial intermediaries in the flow of funds through the three-sector economy.
Do corporations rely more on external or internal funds as sources of financing?
The Pioneer Petroleum Corporation has a bond outstanding with an \(85 annual interest payment, a market price of \)800, and a maturity date in five years. Find the following:
a. The coupon rate.
b. The current rate.
c. The yield to maturity
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