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.

Posted: October 5th, 2023

1. 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? [2 Mark]
2.  What is the Expected return on the assets (Cost of capital ) of a firm with following data. [2 Marks] Assets Value 100 Debt (D) 40– Equity (E) 60 Total Asset value 100 Firm Value 100 Expected Return on the debt (rdebt) = 8% Expected Return on the Equity (requity) = 16%
3. 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. [2 Marks]
4. Explain the concept of Financial Distress and Financial Slack. Also write the benefits and drawbacks of Financial Slack. [2 Mark]
5. What is Underwriter Spread? Explain with example. Write down the steps followed in an IPO Flowchart. [2 Marks]