Exam 9: Financing a Business 2: Raising Long-Term Funds

Details of a government bailout of a large Canadian auto parts company signed late on Friday were released to the press on Monday. If the market reflects a strong form of efficiency, when would a change in share price reflecting the news of the bailout have happened?

Kiera Jones bought 100 shares of XLNX at $4.00 per share. One year later the share price of XLNX was $10.00 per share. During this period the S&P/TSX went from 8,000 to 12,000, the NASDAQ went from 1,600 to 2,400, the Dow-Jones Industrial average went from 6,000 to 11,000 and the S&P 500 went from 750 to 1,300. Which of the following statements best describes this market action?

Assuming the share price did not change much, when would an investor be worse off?

On June 3, CapiCal who had 2,500,000 common shares outstanding executed a two-for-one stock split. The company's shares that had been trading for $96.50 a share at the close of yesterday's trading, closed June 3rd at $48.50. What is the increase/decrease in market capitalization that CapiCal experienced?

Which of the following is an example of a primary capital market?

For a market to exhibit semi-strong form of efficiency, which of the following situations must exist?

Terri-Tech Inc. is a small company made up of two twenty-something software developers. Terri-Tech requires financing to market an innovative application. The dealer with whom the developers have worked has suggested that the developers offer a new issue of shares by means of a direct invitation to the public, through an advertisement in the Globe and Mail Report on Business. The dealer will not assume the risk of the issue being bought. What is the name of this method of equity financing?

Pioneer Logging owns a tug boat to manage floating booms of felled trees off the Queen Charlotte Islands. The boat was purchased in February of 2006 for $128,000. If the rate for the asset class is 15%, what is the amount of CCA (capital cost allowance) that the company can claim on their 2008 income tax return?

Which of the following best describes an efficient capital market?

M Dana's Dressmakers and Alterations Ltd. is looking at the purchase of several serging machines for their new third location. The company can buy the equipment for $6,000 and finance it with a three-year operating loan at 6% where interest is paid at the end of each year and the principal is paid at the end of the term. The capital cost allowance rate (CCA) is 25% and the income tax rate is 30%. What is the present value of the tax shield from the equipment purchase over the first three years if the cost of capital is 6%?

Silverman Ltd. has five million common shares outstanding at $24.00 a share. The Board of Directors has authorized a one-for-three rights issue at $20 per share. What is the ex-rights price?

Dirkin and Trente Inc. (DTI) has decided to lease its electronic switching system for four years. The useful lifetime of the asset is seven years, the present value of the lease payments account for less than 60% of the fair value of the switching system and the outsourcing company which is leasing the equipment to DTI will hold title to the assets and reclaim the equipment at termination of the contract. What are the accounting implications of the leasing charges?

What is the interest rate that a plant manager is being charged if she decides to lease the robotic welders with no salvage value at $12,000 per year for ten years, starting with an immediate payment, instead of paying a negotiated cash price for them of $74,593.20?

The day Michael liquidated his old portfolio and rolled the cash into a new portfolio, he calculated the market capitalization of his former holdings and set that as a baseline equal to 1000. On the day of sale it represented ownership in five companies: 1,500 shares of A selling at $23.50, 1,000 shares of B at $32.00, 6,500 shares of C at $7.29, 200 shares of D at $128.45 and 1,200 shares at $56.78 of E. A year later his old portfolio had an index value of 1102 and Michael's new portfolio was at 872. How much more money would Michael have had if he had kept his old portfolio?

What is an advantage to a small business in listing on the stock exchange?

From which of the following does a venture capital company usually achieve its greatest return?

What is the purpose of investment analysts dividing the universe of listed companies into small cap, medium cap and large cap companies?

Why does the secondary market reduce the risk of investing in debt and equity instruments?

Which of the following is a significant implication of stock market efficiency?

Assuming the market takes on the characteristics of a weak form of efficiency, which of the following would be the worst investment strategy to practice?