Fin- 7

Assignment 7

(This assignment is worth 87 points.)

IMPORTANT……. READ THIS

This assignment must be submitted as a Turnitin assignment in Blackboard.

NOTE: Your answers to the discussion questions below should be in your own words.

You should not copy from another students’ work or from any other source without

including an in-text citation.

Style Guidelines for discussion questions: Use 12 pt. times new roman font. Your margins should be set

at 1”. You should double space your text. Use in-text citations and include a ‘References’ page after

your discussion text answers. You should use 1 to 2 sources, in addition to the textbook, as references

for each question (See Assignment 7 folder for Additional Resources for this assignment in

Blackboard). Check your spelling and grammar carefully.

Grade Guidelines: Each discussion question is worth 20 points and will be graded based on style,

content, and clarity. The expected length of your submission is 1.5 to 2.5 pages per question.

Chapter 16 (20 points): Discuss the advantages and disadvantages of corporate debt.

Chapter 16 – Appendix (20 points): Discuss the financial alternatives for distressed firms.

Chapter 17 (20 points): Discuss preferred stock.

SHOW YOUR CALCULATIONS FOR EVERY PROBLEM TO RECEIVE CREDIT

Chapter 16 Problem (13 points)

Aardvark Printers Corporation has just signed a 120-month lease on an asset with a 12 year

life. The minimum lease payments are $5,600 per month ($67,200 per year) and are to be

discounted back to the present at a 7.0 percent annual discount rate. The estimated fair value

of the property is $500,000. The Lessee does not have a bargain purchase option or any

stated transfer of ownership at the end of the lease period.

a. Calculate the lease period as a percentage to the estimated life of the leased property.

b. Calculate the present value of lease payments as a percentage to the fair value of the property.

c. Should the lease be recorded as a capital lease or an operating lease? Consider all 4 criteria

from the text on page 523 to answer this question.

Chapter 17 Problem (14 points)

Alyssum Timber is holding a stockholders’ meeting next month. Mr. Deltic is the president

of the company and has the support of the existing board of directors. All 12 members of the

board are up for reelection. Mrs. Clark is a dissident stockholder. She controls proxies for

340,001 shares.

Mr. Deltic and his friends on the board control 440,001 shares. Other stockholders, whose

loyalties are unknown, will be voting the remaining 240,998 shares. The company uses

cumulative voting.

a. How many directors can Mrs. Clark be sure of electing?

b. How many directors can Mr. Deltic and his friends be sure of electing?

c. How many directors could Mrs. Clark elect if she obtains all the proxies for the uncommitted

votes? (Uneven values must be rounded down to the nearest whole number regardless of the

amount.) Will she control the board?