Slurp Cola Inc is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year
Assume that Slurp has a 100% payout rate, 1,000 shares outstanding, and that shareholders require a return of 6%. Assume that the tax rate is 0%.
Slurp Cola Inc is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $10.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 4%. Assume that the tax rate is 0%.
If Slurp goes ahead with the repurchase, then what is the stock price after the repurchase is complete?
A) $9.50
B) $10.00
C) $10.50
D) $11.00
E) $11.50
B
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When issuing new stock, a firm received $50 million while the underwriting spread was $4 million and total direct expenses were $6 million. The %age of the proceeds absorbed by direct expenses was:
A. 7.14% B. 8.00% C. 10.71% D. 12.00%
A United States auditor is aware that the report on the financial statements will be available on the internet to parties outside the United States. In the auditor's report how should the auditor refer to the country of origin of the accounting principles used to prepare the financial statement?
a. In the auditor's responsibility section and opinion paragraph b. In the auditor's responsibility section and management responsibility for the financial statements paragraph c. In the opinion paragraph only d. In the Management's responsibility for the financial statements and opinion paragraphs