Exam 15: Debt Financing

Supreme Industries issues the following announcement to holders of an issue of callable, convertible notes: "Prior to the close of business on May 17, 2008, holders may convert their Notes into shares of Supreme Industries common stock at 33.25 shares of Supreme Industries common stock per $1,000 principal amount of the Notes. Cash will be paid in lieu of fractional shares. On April 16, 2008, the last reported sale price of Supreme Industries common stock on the NYSE was $21.60 per share." If on May 17, Supreme Industries is trading as $24.60, what is the value of common stock a holder of a $1,000 note would receive?

A company issues a callable (at par) ten-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $104 per $100 of face value. What is the yield to maturity of this bond when it is released?

Covenants in a bond contract restrict the actions that management of a firm can take that would benefit the debtholders of a firm at the expense of the equity holders of the firm.

In which of the following situations would the yield to worst for a certain bond be that bond's yield to call? I. The bond's coupon payments are high relative to market yields.

A firm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $4.70. If the bonds are called on this date, which of the following is the action most likely to be taken by a holder of bond of face value of $10,000?

What is yield to worst?

Eurobonds issued in the United Kingdom could NOT be issued in which of the following denominations?

A firm issues $300 million in straight bonds at an original issue discount of 0.50% and a coupon rate of 7%. The firm pays fees of 2.0% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is closest to which of the following?

Which of the following is an advantage of a public bond issue over private placement?

A convertible bond has a face value of $1,000 and a conversion ratio of 50. This bond will sell at a premium when which of the following occurs?

Which of the following statements regarding the private debt market is FALSE?

What kind of corporate debt must be secured by real property?

Which of the following statements is FALSE?

When would it make sense for a firm to call a bond issue?

The face value of bonds is denominated most commonly in which of the following standard increments?

Why do the issuers of bonds not seek to minimize the strength and number of covenants in a bond agreement?

Which of the following statements is FALSE?

________ are international bonds that are not denominated in the local currency of the country in which they are issued.

What are secured debt?

Clearview Corporation, a company that deals mainly with the financing and distribution of music, issues debt with a maturity of 15 years. In the case of bankruptcy, holders of this debt will have claim to the intellectual property of Clearview. Which of the following best describes this type of corporate debt?