Exam 15: Debt Financing

A bond with a face value of $1,000 is convertible to common stock at a conversion ratio of 60. If the stock is currently trading at $8.20 per share, the value of the bond is probably closest in value to which of the following?

A firm issues $500 million in straight bonds at par and a coupon rate of 5%. The firm pays fees of 2% on the face value of the bonds. What is the net amount of funds that the debt issue will provide for the firm?

Smithfield Enterprises issues debt with a maturity of 7 years. In the case of bankruptcy, holders of this debt may only claim those assets of the firm that are not already pledged as collateral on other debt. Which of the following best describes this type of corporate debt?

A firm issues $300 million in ten-year bonds with an annual coupon rate of 8%. The firm uses a sinking fund to repurchase 10% of the bond issue on each coupon payment date. What payment must they make on the tenth and final coupon payment?

In which of the following situations does the value of a convertible bond exceed the value of straight debt or equity by the greatest amount?

A firm issues $200 million in straight bonds at par and a coupon rate of 7%. The firm pays fees of 4.0% on the face value of the bonds. What is the net amount of funds that the debt issue will provide for the firm?

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?

The chief advantage of debt financing over financing through raising equity capital is that the former does not dilute the current owner's share of the business.

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.

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Tompkinson's PLC., a British company, issues a bond in U.S. dollars in the United States which is intended for U.S. investors. Which of the following best describes this bond?

What is a call provision?

Which of the following is usually a form of public debt?

Which of the following statements is FALSE?

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. II. The bond price is at a discount. III. The likelihood of the bond being called is high.

A company issues a callable (at par) five-year, 7% 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 $110 per $100 of face value. What is the yield to call of this bond when it is released?

Gepps Cross Industries issues debt with a maturity of 25 years. In the case of bankruptcy, holders of this debt may only claim those assets of the firm that are not already pledged as collateral on other debt. Which of the following best describes this type of corporate debt?

Which of the following statements regarding sinking fund provisions is FALSE?

In terms of public offerings of bonds, what is a prospectus?