Expert Answers

A prospectus is a letter issued by the SEC authorizing a new issue of securities.
Outdoor Living needs $7.5 million to finance modifications to its production equipment because the design of its all-season tents has changed dramatically. The underwriters estimate that the firm could sell additional shares of stock at $14.50 a share with a 7.5 percent underwriting spread. This would be a firm commitment underwriting. The estimated issue costs are $121,000. How many shares of stock will Outdoor Living need to sell to finance this project?

Explain how a firm loses value during the bankruptcy process from both a creditors and a shareholders perspective.
What is “homemade leverage?”

Pewter & Glass is an all equity firm that has 80,000 shares of stock outstanding. The company is in the process of borrowing $600,000 at 9 percent interest to repurchase 12,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?

The Turtle Cave currently has 160,000 shares of stock outstanding that sell for $60 per share. Assume no market imperfections or tax effects exist. What will the new share price be if the firm declares a 15 percent stock dividend?

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?
A. special dividend
B. stock split
C. share repurchase
D. rights offer
E. liquidating dividend
Which one of the following is a direct result of a 2-for-1 stock split?
A. a 100 percent increase in the number of shareholders
B. a 100 percent increase in the common stock account balance
C. a 100 percent decrease in the stock price
D. a 50 percent increase in the number of shares outstanding
E. a 50 percent decrease in the par value per share