This task assesses the following learning outcomes:
1. Demonstrate a deep understanding of the theory and practices of financing a firm and its capital structure.
1. Evaluate the financing risk that may result from the chosen debt ratio.
1. Critically evaluate the dividend payout ratio.
1. Describe and analyze the trade-off between paying dividends and retaining the profits within the company.
1. Explain the purpose and procedure related to stock repurchases.
1. Evaluate and advice on a firm going from private to a public company.
1. Discuss and analyze the benefits of leasing versus ownership of assets.
1. Analyze the concepts underlying the firm’s cost of capital (WACC).
1. Discuss the forms of acquisition.
1. Critically evaluate what is financial distress.
ASSIGNMENT QUESTIONS:
IMPORTANT: SHOW YOUR DETAILED SOLUTIONS FOR EACH QUESTION.
Problems (10 points each)
1.- The company Noland Inc has 2.5 million common shares outstanding, and they have a new project in mind, the investment needed is €11 million.
The current Corp.'s stock price is 45.
Noland is debating between two scenarios:
0. Three shares of outstanding stock are entitled to purchase one additional share of the new issue.
0. Seven shares of outstanding stock are entitled to purchase one additional share of the new issue.
What are the ex-rights stock price, the value of a right, and the appropriate subscription prices under scenarios 1 and 2?
2.- Derby is willing to invest in a new electric car automated production channel with a cost of €60 Million, the expected life of 7 years.
The tax rate is 25%, and Derby is considering whether to buy or lease the production Channel, assuming that they could borrow a loan from the bank at the interest of 6 percent.
The request an offer from La Caixa leasing services that requests an annual lease price of €10,7 Million.
What would you advise them to do, explain all the calculation steps and what is the process?
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