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Chapter 5: Q6DQ (page 594)
Discuss how the desire for control may influence a firm’s willingness to pay dividends?
The management may decide to withhold dividend pay-out in small firms to save costs of external financing but in large firms the dividend is paid to ensure that the shareholders are happy.
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What is the difference between a bond agreement and a bond indenture? (LO16-1)
The Hardaway Corporation plans to lease a \(740,000 asset to the O’Neil Corporation. The lease will be for 11 years.
b. If the Hardaway Corporation is able to take a 10 percent deduction from the purchase price of \)740,000 and will pass the benefits along to the O’Neil Corporation in the form of lower lease payments, (related to the Hardaway Corporation in the form of lower initial net cost), how much should the revised lease payments be? The Hardaway Corporation desires a 13 percent return on the 11-year lease
Becker Brothers is the managing underwriter for a 1.45-millon-share issue by Jay’s Hamburger Heaven. Becker Brothers is “handling” 10 percent of the issue. Its price is \(27 per share, and the price to the public is \)28.95.
Becker also provides the market stabilization function. During the issuance, the market for the stock turns soft, and Becker is forced to purchase 50,000 shares in the open market at an average price of \(27.50. It later sells the shares at an average value of \)27.20.
Compute Becker Brother’s overall gain or loss from managing the issue.
The Presley Corporation is about to go public. It currently has after-tax earnings of \(7,200,000, and 2,100,000 shares are owned by the present stockholders (the Presley family). The new public issue will represent 800,000 new shares. The new shares will be priced to the public at \)25 per share, with a 5 percent spread on the offering price. There will also be $260,000 in out-of-pocket costs to the corporation.
c. Compute the earnings per share immediately after the stock issue.
What act of Congress created the Securities and Exchange Commission?
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