Q1. Olszaniecki Inc. issued $80 million of bonds convertible into regular common shares at a price of $56 per share. Current price is $75 per share. Immediately prior to any transactions, Olszaniecki’s total debt is $205 million and total equity is $400 million. It is expected that half of the bonds will be converted this year and the remaining half will be converted next year. All other things being equal, which of the following amounts represents Olzaniecki’s debt to total capital ratio after all of the bonds have been converted? A) 0.273. B) 0.260. C) 0.207.
Q2. Compared to a company that issues convertible debt, a company that issues an equivalent combination of conventional bonds with warrants attached will have: A) greater interest expense and greater equity. B) lower interest expense and higher total assets. C) greater interest expense and lower total assets.
Q3. Cameron Inc. has $10 million of bonds outstanding that are convertible into common shares. The current price per share is $44 and the stated conversion price is $49 per share. Cameron also has exchangeable bonds issued for $20 million that are to be exchanged for shares of Adam Inc. worth $20 million (therefore no gain or loss is realized on the exchange). Based solely on the facts provided above, what effect should the convertible bonds and exchangeable bonds have on an analyst’s assessment of Cameron’s fundamental debt to total capital ratio? Convertible Bonds Exchangeable Bonds
A) No effect No effect B) Increase Decrease C) No effect Decrease
Q4. Jones Inc. has a capital structure consisting of $8 million of liabilities and $10 million of equity. Included in liabilities is $1.2 million worth of exchangeable bonds. Immediately afterwards, Jones issues $0.7 million of redeemable preferred shares for cash proceeds and also calls its entire group of exchangeable bonds, netting a gain of $0.3 million on the bonds. Which of the following amounts is Jones’ revised debt to total capital ratio upon completion of the two new transactions? A) 0.728. B) 0.421. C) 0.458.
Q5. Which of the following will result in the lowest debt-to-total-capital ratio, assuming that all issues raise the same amount of funds? A) Bonds with warrants attached. B) Zero-coupon bonds. C) Convertible bonds.
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发表于 2009-1-19 11:39
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