Economics

[QUESTION] [Problem 20.8] The US Zither Corporation has $50 million of 14 percent debentures outstanding, which are due in 25 years. USZ could refund these bonds in the current market with new 25-year bonds, sold to the public at par ($1,000 per bond) with a 12 percent coupon rate. The spread to the underwriter is 1 percent, leaving $990 per bond in proceeds to the company. The old bonds have an unamortized discount of $1 million, unamortized legal fees and other expenses of $100,000, and a call...

[QUESTION] What is the difference between a public and a private issue of securities?

[QUESTION] How does a traditional (firm commitment) underwriting differ from a shelf registration?

[QUESTION] As a best efforts offering is “cheaper” than a traditional (firm commitment) underwriting, why don’t more companies make use of it?

[QUESTION] In offering a new bond issue, the firm may decide to sell the bonds through a private placement or through a public issue. Evaluate these two alternatives.

[QUESTION] An inverse relationship exists between flotation costs and the size of the issue being sold. Explain the economic forces that cause this relationship.

[QUESTION] Should the preemptive right be required of all companies that issue common stock or securities convertible into common stock?

[QUESTION] Many major US corporations have extensively used rights offerings in the past. Why do you feel these corporations have chosen to raise funds with a rights offering rather than a public equity issue, especially when a fair percentage of the rights (2 to 5 percent) is never exercised?

[QUESTION] [Problem 20.1] Gillis Manufacturing Company has in its capital structure $20 million of 13.5 percent sinking-fund debentures. The sinking-fund call price is $1,000 per bond, and sinking-fund payments of $1 million in face amount of bonds are required annually. At present, the yield to maturity on the debentures in the market is 12.21 percent. To satisfy the sinking fund payment, should the company deliver cash to the trustee or bonds? What if the yield to maturity were 14.60 percent?

[QUESTION] What role does the subscription price play in a rights offering?