If a firm has debt outstanding the contingent claim of a shareholder is

Question 19 The value of a firm and shareholder wealth are maximized under which of the following conditions? Capital projects are accepted at any point along a firm’s investment opportunity schedule that is:

A.below the firm’s marginal cost of capital curve.

B.above the firm’s average cost of capital curve.

C.above the firm’s marginal cost of capital curve.

D.below the firm’s average cost of capital curve.

Five persons, A, B, C, D and E,establisha limited company jointly. Investment agreement appointed that A contribute ￥100,000cash, he has paid ￥60,000, and still ￥ 40,000unpaid. In a shareholders meeting, herequestedexempting the￥40,000 contribution obligation. Of the five shareholders,four agreed. C, who was against the shareholder’s decision,suedto the court, and claim confirming the shareholder resolution invalid. In this regard, which of the following statements is correct? A、 The resolution is invalid, and debt is not exempted. B、 The resolution is effective, and the debt has been exempted from A C、 The resolution is subject to the consent of all shareholders to be effective. D、 The resolution can be revoked, any shareholder other than A enjoyedtheright of revocation.

The management of the company is to raise ______.

A．the value of the firm for the shareholders

B．the asset of the firm for the debtors

C．the liquidity assets for the debtors

D．the stockholding plans for the employees

The finance director of AQR Co has heard that the market value of the company will increase if the weighted average cost of capital of the company is decreased. The company, which is listed on a stock exchange, has 100 million shares in issue and the current ex div ordinary share price is $2·50 per share. AQR Co also has in issue bonds with a book value of $60 million and their current ex interest market price is $104 per $100 bond. The current after-tax cost of debt of AQR Co is 7% and the tax rate is 30%.

The recent dividends per share of the company are as follows.

The finance director proposes to decrease the weighted average cost of capital of AQR Co, and hence increase its market value, by issuing $40 million of bonds at their par value of $100 per bond. These bonds would pay annual interest of 8% before tax and would be redeemed at a 5% premium to par after 10 years.

Required:

(a) Calculate the market value after-tax weighted average cost of capital of AQR Co in the following circumstances:

(i) before the new issue of bonds takes place;

(ii) after the new issue of bonds takes place. Comment on your findings. (12 marks)

(b) Identify and discuss briefly the factors that influence the market value of traded bonds. (5 marks)

(c) Discuss the director’s view that issuing traded bonds will decrease the weighted average cost of capital of AQR Co and thereby increase the market value of the company. (8 marks)

The following financial information relates to YNM Co, which has a cost of equity of 12%. Assume that it is now 31 March 2011 and that the ordinary share price of YNM Co is $4·17 per share. YNM Co has been experiencing trading difficulties due to a continuing depressed level of economic activity:

Income statement information for recent years ending 31 March

Note: the statement of financial position takes no account of any dividend to be paid. The ordinary share capital of YNM Co has not changed during the period under consideration and the 8% bonds were issued in 1998.

Dividend and share price information

Financial objective of

YNM Co YNM Co has a declared objective of maximising shareholder wealth.

(1) To pay the same total cash dividend as in 2010

(2) To pay no dividend at all for the year ending 31 March 2011

Financing decision

YNM Co is also considering raising $50 million of new debt finance to support existing business operations.

Required:

(a) Analyse and discuss the recent financial performance and the current financial position of YNM Co, commenting on:

(i) achievement of the objective of maximising shareholder wealth;

(ii) the two dividend choices;

(iii) the proposal to raise $50 million of new debt finance. (13 marks)

(b) Discuss the following sources of finance that could be suitable for YNM Co, in its current position, to meet its need for $50m to support existing business operations:

(i) equity finance;

(ii) sale and leaseback. (6 marks)

(c) Explain the nature of a scrip (share) dividend and discuss the advantages and disadvantages to a company of using scrip dividends to reward shareholders. (6 marks)

Carolina Company has options for 100,000 shares outstanding that may be exercised at the discretion of the option holder no earlier than June 30, 2003. The exercise price is $40 per share. The market price of Carolina shares was $30 on December 31, 2001 and was p riced at an average of $32 during 2001. Carolina 抯 earnings per share disclosures for 2001 should:

A.not include the options because they are antidilutive.

B.include the options because they could dilute earnings.

C.not include the options because they cannot be exercised until June 30, 2003.

D.include the options because the shares declined in price during 2001.

The cohesiveness (内聚力)of a family seems to rely on members sharing certain routine practices and events. For a growing share of the American labor force, however, working shifts beyond the normal daylight hours—what we here call "shift work" makes the lives of families difficult.

Existing research shows that both male and female shift workers express high levels of stress and a sense of conflict between the demands of work and family life. But shift work couples still maintain a traditional attitude about the meaning of marriage and the individual roles of husband and wife. They expressed a willingness to do "whatever it takes" to approximate their view of a propel marriage, including sacrificing sleep and doing conventional things at unconventional hours. For the majority of couples interviewed, even when wives worked outside their homes a proper marriage is. characterized by a very clear-division of roles: husbands are "providers" whose major responsibility is to support the family; wives are "homemakers" who clean, cook, and care for husbands and children.

The women's definitions of a "good husband" are typified by the following wife's response:

I expect him to be a good provider, and be there when I need him, loyal about the same things as he would expect out of me, expect that I expect him to dominate over me. But in a manner of speaking when it's time to be a man I expect him to stand up instead of sitting back expecting me to do everything.

To husbands, a good wife is someone who is:

Understanding of what I feel go through at work. I need that respect at work, I hope I get it at work. I want my wife to realize what I expect at work. I don't want her to give me a lot of shit when I come home from work because I don' t know if this makes much sense.

These views seemed critical to maintain the families of the shift workers.

Despite ______ , shift work couples still hoped to maintain a stable life.

A．traditional beliefs about marriage

B．lack of control over time

C．a very clear division of roles

D．the demands of work

Lane Co has in issue 3% convertible loan notes which are redeemable in five years’ time at their nominal value of $100 per loan note. Alternatively, each loan note can be converted in five years’ time into 25 Lane Co ordinary shares.

The current share price of Lane Co is $3·60 per share and future share price growth is expected to be 5% per year.

The before-tax cost of debt of these loan notes is 10% and corporation tax is 30%. What is the current market value of a Lane Co convertible loan note?

A.$82·71

B.$73·47

C.$67·26

D.$94·20

The price of shares in this company has begun to rise.

&8226;Read the extract below from the annual report of a bed manufacturer.

&8226;In most of the lines (41-52) there is one extra word. It is either grammatically incorrect or does not fit in with the sense of the text. Some lines, however, are correct.

&8226;If a line is correct, write CORRECT on your Answer Sheet.

&8226;If there is an extra word in the line, write the extra word in CAPITAL LETTERS on your Answer Sheet.

CHIEF EXECUTIVE’S REVIEW

The prime focus for management recently has been the integration into the Group of Damon Beds. This acquisition is very much greater part of our strategy to grow our

41 presence in the UK branded furniture market. We are neither convinced that

42 leveraging the proven brand management expertise of which we are proud is the

43 optimum route to continued and sustainable growth in shareholder value. Overall,

44 sales grew more quickly than 9%, to reach ￡125 million. This represents a small

45 increase in market share such as our strategy to build share in growing, added value

46 sectors gains momentum. Our established brands had another excellent year with

47 volumes and turnover at record levels. While we have increased capacity to cope with

48 significantly increased demand, boosted by the return to television advertising in early

49 last year. The purpose of the campaign is how to reinforce our position as the UK's

50 leading volume bed business by improving brand awareness still further on and, more

51 importantly, communicating to consumers regarding the message about the uniqueness

52 of the product and yet the benefits and reasons for choosing our beds. Early indications show that the campaign is already having the desired effect.

(41)