Reference no: EM132196102

1) Suppose that Lil John Industries' equity is currently selling for $47 per share and that 4.0 million shares are outstanding. The firm also has 70,000 bonds outstanding, which are selling at 104 percent of par. Assume Lil John was considering an active change to its capital structure so that the firm would have a (D/E) of 1.3.

Which type of security (stocks or bonds) would it need to sell to accomplish this?

Sell bonds and buy back stock

Sell stock and buy back bonds

How much would the firm have to sell? (Enter your answer in dollars not in millions. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Selling amount

2) Suppose that Papa Bell, Inc.'s, equity is currently selling for $44 per share, with 3.9 million shares outstanding. The firm also has 8,000 bonds outstanding, which are selling at 95 percent of par. Assume Papa Bell was considering an active change to its capital structure so as to have a D/E of 0.5.

Which type of security (stocks or bonds) would the firm need to sell to accomplish this?

Sell bonds and buy back stock

Sell stock and buy back bonds

How much would it have to sell? (Enter your answer in dollars not in millions. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Selling amount $

3) Suppose that Lil John Industries' equity is currently selling for $28 per share and that 1.1 million shares are outstanding. Assume the firm also has 21,000 bonds outstanding, and they are selling at 102 percent of par.

What are the firm's current capital structure weights? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Capital structure weights
Equity %

Debt %

4) Suppose a firm has a retention ratio of 40 percent, net income of $35.8 million, and 180 million shares outstanding. What would be the dividend per share paid out on the firm's stock? (Round your answer to 2 decimal places.)

Dividend per share $

5) Suppose a firm pays total dividends of $344,000 out of net income of $4.3 million. What would the firm's payout ratio be? (Round your answer to 2 decimal places.)

Payout ratio

6) If a firm has retained earnings of $3.2 million, a common shares account of $5.2 million, and additional paid-in capital of $10.4 million, how would these accounts change in response to a 10 percent stock dividend? Assume market value of equity is equal to book value of equity. (Enter your answers in dollars not in millions. Input all amounts as positive values. Indicate the direction of the effect by selecting "increase" , "decrease" and "no change" from the dropdown menu.)

Retained earnings to
$

Common stock to
$

Additional paid-in capital to
$

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7) Harper's Dog Pens, Inc., with the help of its investment bank, recently issued $191.6 million of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 6 percent of the gross proceeds.

Calculate the amount of capital funding Harper's Dog Pens raised through this bond issue. (Enter your answer in dollars not in millions.)

Funds received $

8) A loan commitment of $4.32 million has an up-front fee of 80 basis points and a back-end fee of 50 basis points. The take down on the loan is 60 percent.

Calculate the total fees you will pay on this loan commitment. (Round your answer to 2 decimal places.)

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