Reference no: EM132784806

Questions -

Question 1 - What is the current market price of each $100 face value bond of HK's long-term debt issue? Round your final answer to two decimal places.

Question 2 - What is the required rate of return on HK's common shares if internally generated funds will be sufficient to finance the equity portion of any new financing and:

a) the capital asset pricing model (CAPM) is used to determine the shares' required rate of return?

b) the constant-growth dividend discount model is used to determine the shares' required rate of return?

Question 3 - What is HK's weighted average cost of capital (WACC), assuming its cost of common equity will be determined using the CAPM and it will issue new common shares? Round market values to the nearest thousand. (Treat the yield on debt as an annual rate for this purpose.)

Question 4 - HK's senior management has decided to finance the new Motor Vessel division exclusively using new common equity. One proposal put forward was to make a rights offering. Explain what a rights offering entails and give one reason why this would be considered.

Question 5 - Is the decision to raise approximately $20 million to finance the new division exclusively using new equity likely to affect HK's WACC? Explain why or why not in terms of financial leverage, component costs, and capital structure. What is the likely impact? (Note: A recalculation of the WACC is not required for this question.)