Assignment-1– FY 2023-24 2st TERM Fin201 SEU | ELITE SEU | ELITE 1 SEU ELITE In a best-efforts commitment, the underwriter: a. buy the securities from the firm and then resell them to the public. b. Guarantee the proceeds to the issuing firm. c. agree to sell as much of the issue as possible but do not guarantee the sale of the entire issue. d. Assure purchasers that the stock will appreciate. Additional paid-in capital refers to: a. a firm’s retained earnings. b. a firm’s treasury stock. c. the difference between the issue price and the par value. d. funds borrowed from a bank or bondholders. An investor exercises his right to buy one additional share at $35 for every 4 shares held. How much should each share be worth after the rights issue if they previously sold for $70 each? a. Share price = 35 b. Share price = 53 c. Share price = 60 d. Share price = 63 With risky debt and MM II, the expected return on assets a.increases; increases. b.decreases; increases. c. increases; decreases. as the debt-equity ratio . d. is constant; increases. The type of voting that is most likely to allow minority stockholders a greater representation on the board of directors is known as: a.proxy voting. b.majority voting. c. staggered voting. d. cumulative voting. Assume the issuer incurs $4 million in other expenses to sell 4 million shares at $53 each to an underwriter and the underwriter sells the shares at $58 each. By the end of the first day’s trading, the issuing company’s stock price had risen to $80. What is the total cost of underpricing? a.Cost of underpricing = 53 million b. Cost of underpricing = 55 million c. Cost of underpricing = 85 million d. Cost of underpricing = 88 million The formal summary that provides information on an issue of securities is called: a. Underpricing laws. b. Financial statement. c. Prospectus. d. Shelf Registration. 2 SEU ELITE Treasury stocks are: a. Shares that have been issued by the company b. The issued and repurchased shares held in a company’s treasury. c. Shares that have been issued by the company and are held by investors. d. The maximum number of shares that the company is permitted to issue without additional shareholder approval. What is the expected rate of return to shareholders if the firm has a 40% tax rate, a 12% rate of interest paid on debt, a 8.6% WACC, and a 50% debt-asset ratio? a. 18% b. 12% c. 10% d. 8 % An investor owns a bond selling for $5,000. This bond can be converted into 55 shares of stock that are currently selling for $80 per share. Should the investor convert his bond into shares? a.Yes, as the investor will have $5000 profit. b. Yes, as the investor will have $4400 profit. c. No, as the investor will have $600 loss. d. No, as the investor will have $4400 loss. Essay What is the net value of common equity for a firm with 5 000,000 shares issued, 1 million shares outstanding, $4 000,000 of retained earnings, $3 000,000 of treasury stock at cost, $2 000,000 in additional paid-in capital, and $1 par value per share? (Show your calculations; Each step =1 mark) 3 SEU ELITE