Q1: An investor owns a bond selling for $5,000. This bond can be converted into

Q1: An investor owns a bond selling for $5,000. This bond can be converted into

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? [2 Mark]

Q2: 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%

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. [2 Marks]
Q4. Explain the concept of Financial Distress and Financial Slack. Also write the benefits and drawbacks of Financial Slack. [2 Mark]

Q5. What is Underwriter Spread? Explain with example. Write down the steps followed in an IPO Flowchart.[2 Marks]