# Finance Questions

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 Chapter 15, Question 1- Moonscape has just completed an initial public offering. The firm sold 1 million shares at an offer price of \$10 per share. The underwriting spread was \$.70 a share. The price of the stock closed at \$15 per share at the end of the first day of trading. The firm incurred \$100,000 in legal, administrative, and other costs. What were flotation costs as a fraction of funds raised? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 Costs as percent of funds raised [removed]%

 Chapter 15, Question 3- Associated Breweries is planning to market unleaded beer. To finance the venture, it proposes to make a rights issue with a subscription price of \$10. One new share can be purchased for every two shares held. The company currently has outstanding 120,000 shares priced at \$40 a share. Assuming that the new money is invested to earn a fair return, give values for the following:

 a. Number of new shares.

 Number of new shares [removed]

 b. Amount of new investment.

 New investment \$ [removed]

 c. Total value of company after issue.

 Value of company \$ [removed]

 d. Total number of shares after issue.

 Total number of shares [removed]

 e. Share price after the issue.

 Share price after issue \$ [removed]

 Chapter 16, Question 2- River Cruises is all-equity-financed.

 Current Data Number of shares 100,000 Price per share \$ 10 Market value of shares \$ 1,000,000 State of the Economy Slump Normal Boom Profits before interest \$ 80,500 136,000 197,500

 Suppose it now issues \$250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on firm value. Refer to the above table to compute the missing data. (Do not round intermediate calculations. Round "Earnings per share" to 3 decimal places. Enter "Return on shares" as a percent rounded to 2 decimal places.)

 Outcomes Number of shares [removed] Price per share \$10 Market value of shares \$ [removed] Market value of debt \$ [removed] State of the Economy Slump Normal Boom Profits before interest \$80,500 \$136,000 \$197,500 Interest \$ [removed] \$ [removed] \$ [removed] Equity earnings \$ [removed] \$ [removed] \$ [removed] Earnings per share \$ [removed] \$ [removed] \$ [removed] Return on shares [removed]% [removed]% [removed]% Expected Outcome

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