In-class Exercise




Дата канвертавання24.04.2016
Памер7.85 Kb.
FIN36058 Financial System

Instructor: Aiwu Zhao

Chapter 9

In-class Exercise


1. You buy a stock for $14 per share and sell it for $18 after you collect a $1.00 per share dividend.

(a) What is your pre-tax capital gain yield? What is your pre-tax dividend yield?

(b) If your ordinary income tax rate is 28% and your capital gains tax rate is 20%. What is your after-tax rate of return?
(a) 28.57%; 7.14%; (b) 28%
2. A firm wants to sell stock to the public. The underwriter charges $0.4 million in fees and offers to buy 6 million shares from the firm at a price of $19 per share. In addition, registration and audit fees total $145,000, and marketing and miscellaneous fees add up to another $65,000. The underwriter expects to earn gross proceeds per share of $21.


  1. What is the issuing firm's out of pocket dollar transaction cost to issue the stock?

  2. Immediately after the stock was issued, the stock price rose to $23. What is the issuing firm's opportunity cost?

  3. What is the total issuance cost, including opportunity costs, as a percentage of the total funds available to the issuing firm?

Answer:


Out of pocket cost = $400,000 + $145,000 + $65,000 = $610,000

Opportunity cost = 6 million shares * ($23 - $19) = $24,000,000

Actual funds available to firm: 6 million * $19 = $114 million - $610,000 = $113,390,000

Percentage cost = ($24,000,000 + $610,000) / $113,390,000 = 21.7%




Definitions


Weak form/semi-strong form/strong form market efficiency

Red herring prospectus



Concepts

1.In terms of volume of trading and market value of firms traded the ________ is the largest U.S. stock market. In terms of number of firms traded the ________ is the largest in the U.S.

A) NYSE ; NYSE

B) NASDAQ ; NYSE

C) NYSE ; AMEX

D) NYSE ; NASDAQ

E) NASDAQ ; AMEX


2. Which of the following index is NOT value weighted?

A) NYSE Composite

B) S&P500


  1. NASDAQ Composite

  2. Dow Jones Industrial Average

3. Common stocks typically have which of the following that bonds do not have:



  1. Voting rights

  2. Fixed cash flows

  3. Set maturity date

  4. Tax deductibility of cash flows to investors


База данных защищена авторским правом ©shkola.of.by 2016
звярнуцца да адміністрацыі

    Галоўная старонка