Subject: Business    / Finance

1. Jiminy’s Cricket Farm issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The company’s tax rate is 35 percent. Suppose the book value of the debt issue is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 57 percent of par. What is the company’s total market value of debt? What is the company’s total book value? What is the best estimate of after-tax cost of debt?

2. Titan Mining Corporation has 8.5 million shares of common stock outstanding, 250,000 shares of 5 percent preferred stock outstanding, and 135,000 7.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.25, the preferred stock currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 114 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 4 percent, and Titan Mining’s tax rate is 35 percent. a. What is the firm’s market value capital structure? Debt, Preferred Stock, Equity b. If Titan Mining is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows?

3. Berczy Inc. is proposing a rights offering. Presently there are 600,000 shares outstanding at $62 each. There will be 60,000 new shares offered at $52 each. a.    What is the new market value of the company? b.    How many rights are associated with one of the new shares? c.    What is the ex-rights price? (Round your answer to 2 decimal places. (e.g., 32.16)) d.    What is the value of a right? (Round your answer to 2 decimal places. (e.g., 32.16))

4. Milne Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $85. The current price is $96 per share, and there are 15 million shares outstanding. The rights offer would raise a total of $40 million. What is the subscription price? (Round your answer to 2 decimal places. (e.g., 32.16))

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