Discuss the advantages and disadvantages of corporate debt

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Reference no: EM131287562

Your answers to the discussion questions below should be in your own words. You should not quote or copy from another students' work or from any other source including the textbook. You should include in-text citations and a References section after each discussion question.

Style Guidelines for discussion questions: Use 12 pt. times new roman font. Your margins should be set at 1". You should double space your text. You should use 1 to 2 sources, in addition to the textbook, as references for each question (See Assignment 7 folder for Additional Resources for this assignment in Blackboard). Check your spelling and grammar carefully.

Grade Guidelines: Each discussion question will be graded based on style, content, and clarity. The expected length of your submission is 1.5 to 2.5 pages per question.

Chapter 16: Discuss the advantages and disadvantages of corporate debt.
Chapter 16 - Appendix: Discuss the financial alternatives for distressed firms.
Chapter 17: Discuss preferred stock.

Part -1: Problem

Bazzookka Printers Corporation has just signed a 144-month lease on a new printing press with a 15 year life. The minimum lease payments are $5,600 per month and are to be discounted back to the present at a 7.0 percent annual discount rate. The estimated fair value of the property is $550,000.The Lessee does not have a bargain purchase option or any stated transfer of ownership at the end of the lease period.

a. Calculate the lease period as a percentage to the estimated life of the leased property.

b. Calculate the present value of lease payments as a percentage to the fair value of the property.

c. Should the lease be recorded as a capital lease or an operating lease?Consider all 4 criteria from the text on page 523 to answer this question.

Part -2: Problem

Birch Timber is holding a stockholders' meeting next month. Mr. Birch is the president of the company and has the support of the existing board of directors. All 13 members of the board are up for reelection. Mrs. Clark is a dissident stockholder. She controls proxies for 340,001 shares.

Mr. Birch and his friends on the board control 440,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 240,998 shares. The company uses cumulative voting.

a. How many directors can Mrs. Clark be sure of electing?

b. How many directors can Mr. Birch and his friends be sure of electing?

c. How many directors could Mrs. Clark elect if she obtains all the proxies for the uncommitted votes? (Uneven values must be rounded down to the nearest whole number regardless of the amount.) Will she control the board?

Reference no: EM131287562

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