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Chapter 5: Q8DQ (page 471)
What are electronic communication networks (ECNs)? Generally speaking, are they currently part of the operations of the New York Stock Exchange and the NASDAQ Stock Market?
Electronic communication networks deal with orders.
Also, they are a part of the New York Stock Exchange and NASDAQ.
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Question: The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders’ claims are also shown.
Assets | ||
Book value | Liquidation value | |
Accounts receivables | \(1,400,000 | \)1,200,000 |
Inventory | \(1,800,000 | \)900,000 |
Machinery and equipment | \(1,100,000 | \)600,000 |
Building and plant | \(4,200,000 | \)2,500,000 |
Total assets | \(8,500,000 | \)5,200,000 |
Liabilities and stockholder’s claims | |
Liabilities | |
Accounts payable | \(2,800,000 |
First lien, secured by machinery and equipment | \)900,000 |
Senior unsecured debt | \(2,200,000 |
Subordinated debenture | \)1,700,000 |
Total liabilities | \(7,600,000 |
Stockholder’s claims | |
Preferred stock | \)250,000 |
Common stock | \(650,000 |
Total stockholder’s claims | \)900,000 |
Total liabilities and stockholder’s claims | $8,500,000 |
g. List the remaining claims (unsatisfied secured and unsecured) and make an initial allocation and final allocation similar to that shown in Table 16A-4. Subordinated debenture holders may keep the balance after full payment is made to senior debt holders.
Explain how the zero-coupon rate bond provides return to the investor. What are the advantages to the corporation? (LO16-2)
Tyson Iron Works is about to go public. It currently has after-tax earnings of \(4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at \)25 per share with a 3 percent spread on the offering price. There will also be $280,000 in out-of-pocket costs to the corporation.
e. Determine what rate of return must be earned on the proceeds to the corporation so there will be a 10 percent increase in earnings per share during the year of going public.
Under what circumstances would a call on a bond be exercised by a corporation? What is the purpose of a deferred call? (LO16-3)
Using the information in Problem 3, assume that American Health Systems’ 1,700,000 additional share can only be issued at $18 per share.
a. Assume that American Health Systems can earn 6 percent on the proceeds. Calculate earnings per share.
b. Should the new issue be undertaken based on earnings per share?
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