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

Kawartha Lakes Scenic Tours Inc. has 4 years left on their 20-year lease, at $10,667 per year, for one of their double-decker tour boats. It will return the boat to the leasing company. The fair value of the boat is $285,000 and expected useful life of the boat is 35 years. What is this is an example of?

Which of the following is a consistent pattern observed in a number of studies of the market that suggests there is an element of market inefficiency?

Labrador Gold Inc. (LG) made a tender offer of shares to the investing public and found the following information. At $1.00 per share, LG could sell 1 million shares. At $2.00, LG could sell eight hundred thousand shares. At $3.00, LG could sell half a million shares. At $4.00, LG could sell four hundred thousand shares. At $5.00, LG could sell three hundred thousand shares. What striking price should LG set?

A company has won a four- year contract to produce extraction equipment for the Athabasca Oil Sands project. It is buying $79.5 million worth of machinery for its Lachine, Quebec plant to be able to fulfill the order. The machinery is financed by a four-year loan at 8% per year, with the current portion of the principal and the interest, equaling $24 million, due at the end of each year. Salvage value is expected to be $29.3 million. If the company's tax rate is 32%, the capital cost allowance (CCA) rate is 25% and the discount rate is 8%, what is the net present value of the company's tax shield over the life of the contract?

Digby Drilling Ltd. (DDL) has hired an investment banker to advise it about a forthcoming convertible bond issue. After surveying institutions the advisor had informed DDL that it can sell $1,000,000 worth of convertible bonds at 10% interest and the same amount of non-convertible bonds at 12% interest. Which of the following lesson about stock market efficiency does this information illustrate?

Barrie Mountains Resort did a one-for-two rights offering at $25.00 per share. The value of the rights offer is $3.33. What is the original price of a share before doing the rights issue.

The share price of Royal Software Inc. bottomed out at $15.00 and over the next two months gradually rose through $16.00 to where it currently stands at $17.50. Which of the following stock patterns is a technical analyst investor following if he buys the stock at $17.50?

Which of the following stock patterns would a technical analyst view as most bearish?

RAJ Inc. would like to issue one million common shares and has an unpublished reserve price of $4.75. The company's investment dealer received the following response to its tender offer. 200,000 shares could be sold at $5.45, 350,000 at $5.25, 350,000 at $5.05, 600,000 at $4.90, 525,000 at $4.75, 725,000 at $4.50 and 700,000 at $4.25. What is the resulting striking price and the distribution of shares to each shareholder?

The Islands Tanning Spa acquired its tanning beds from the franchisor for $125,000. The equipment will last for six years. If the CCA is 30% for tanning beds, the company's tax rate is 35% and the company's discount rate is 9%, what is the present value of The Islands tax shield?

The response that Fandango Co. Ltd. received to its tender offer was the following: 95,000 shares would be purchased at $35.00; 90,000 shares at $45.50; 80,000 at $50.50; 70,000 at $55.00; and 60,000 at $60.50. If Fandango would like to maximize the amount raised from the share issue, what should the the striking price be?

Mercury Metals Inc. has 10 million common shares outstanding at price of $72.00 a share. The company is offering a one-for-five rights issue at $60.00 a share. What is the value of the rights offer?

Whole Plumbing Supplies Ltd. (WPS) graduated from the TSX Venture exchange to the TSX when its share price rose above $7.00. Which of the following minimum listing requirements did WPS finally meet?

What is a disadvantage to many small businesses in listing on the stock exchange?

The S&P/TSX Venture Composite index went from a close August 31, 2007 of 2647.81 to a close December 31, 2007 of 2839.66. What can be concluded from these statistics?

Marcos Mill Equipment sales and rental is bringing in a new type of 3-roller feeder. Its price from the manufacturer is $761. The company is expecting to lease equipment for four years with the payments starting immediately and then bring the feeder into its used equipment inventory at a cost of goods of $180. If the company requires a 12% return, what should the annual lease payment be?

During the Great Recession of 2008-2009, stock markets fell about 40%. Which of the following best indicates the short-term thinking by investors during this period of widespread financial turmoil?

Star Biotech Ltd. has been purchased by a venture capital company, JLM Inc. for $50 million. With JLM's help, Star has been able to negotiate a $30 million loan at 12% per year that immediately improved its liquidity position and allows Star to support the marketing of its innovative product line. Star projects its cash flow before depreciation, interest and taxes in the first two years will be: $5 million and $9.6 million, respectively, and after that will increase each year by 25% over the previous year. JLM Inc. wants to wait until end of the year in which the loan is paid off before selling Star. Ignoring income taxes and assuming all earnings go into paying off the debt, if JLM Inc. expects a 30% return on its capital employed, how much will JLM have to sell Star Biotech Ltd. for?

The ratio of the amount of shares in publicly traded companies being owned by individuals compared to professionally managed funds has changed in the past fifty years. Which of the following best describes what has been observed in the stock market?

Cannery Technologies' IPO was sold out immediately at its opening of $10 a share and closed the first day of trading at $18.25. It continued to rise for two weeks, hitting a high of $22.45, before dropping for four weeks to a low of $13.35. Two weeks later it was continuing to climb steadily surpassing $14.80. Which of the following best describes the market action in this stock?