FIN571 Investor Convert His Bond Into Shares Worksheet

FIN 571 Saudi Electronic University Investor Convert His Bond Into Shares Worksheet

Q1: An investor owns a bond selling for $5,000. This bond can be converted into 50 shares of stock that are currently selling for $82 per share. Should the investor convert his bond into shares? Explain why?

Q2: What is the Expected return on the assets (Cost of capital ) of a firm with following data.

Expected Return on the debt (rdebt) = 8%

Expected Return on the Equity (requity) = 16%

Q3. How much will a firm receive in net funding from a firm commitment underwriting of 300,000 shares priced to the public at $30 if a 10% underwriting spread has been added to the price paid by the underwriter? Additionally, the firm pays $600,000 in legal fees.

Q4. Explain the concept of Financial Distress and Financial Slack. Also write the benefits and drawbacks of Financial Slack.

Q5. What is Underwriter Spread? Explain with example. Write down the steps followed in an IPO Flowchart.