SOLVED

21) The response that Fandango Co. Ltd. received to its tender offer was the following: 95,000 shares would be purchased at $35.00; 90,000 shares at $45.50; 80,000 at $50.50; 70,000 at $55.00; and 60,000 at $60.50. If Fandango would like to maximize the amount raised from the share issue, what should the the striking price be? A) $35.00 B) $45.50 C) $50.50 D) $55.00 E) $60.50 22) From which of the following does a venture capital company usually achieve its greatest return? A) The dividends distributed by the company it has bought into. B) Capital gains upon the sale of the company it has invested in. C) Through the acquisition of buy-in capital (MBI). D) From the spread it achieves by borrowing at a lower interest rate than it lends to the company it has invested in. E) By hedging its investment risk in the company it has acquired through the use of derivatives. 23) Star Biotech Ltd. has been purchased by a venture capital company, JLM Inc. for $50 million. With JLM’s help, Star has been able to negotiate a $30 million loan at 12% per year that immediately improved its liquidity position and allows Star to support the marketing of its innovative product line. Star projects its cash flow before depreciation, interest and taxes in the first two years will be: $5 million and $9.6 million, respectively, and after that will increase each year by 25% over the previous year. JLM Inc. wants to wait until end of the year in which the loan is paid off before selling Star. Ignoring income taxes and assuming all earnings go into paying off the debt, if JLM Inc. expects a 30% return on its capital employed, how much will JLM have to sell Star Biotech Ltd. for? A) $121.8 million B) $142.8 million C) $108.3 million D) $185.6 million E) $241.3 million 24) The ratio of the amount of shares in publicly traded companies being owned by individuals compared to professionally managed funds has changed in the past fifty years. Which of the following best describes what has been observed in the stock market? A) Most share ownership is by professionally managed companies and individual traders are always out positioned in the stock market. B) Most share ownership is by individuals who have more limited access to information than investment professionals so the market cannot be efficient. C) Most share ownership is by professionally managed funds and there has been a concurrent rise in the activity of shareholders in corporate governance. D) Most share ownership is by professionally managed funds so individuals no longer impact corporate governance. E) Most share ownership is by individuals and corporate governance is now fragmented and weak. 25) Dirkin and Trente Inc.(DTI) has decided to lease its electronic switching system for four years. The useful lifetime of the asset is seven years, the present value of the lease payments account for less than 60% of the fair value of the switching system and the outsourcing company which is leasing the equipment to DTI will hold title to the assets and reclaim the equipment at termination of the contract. What are the accounting implications of the leasing charges? A) Ignored as a capital lease is treated as asset ownership. Both the asset and the long-term liability side of the balance sheet increase and capital cost allowance is taken. B) Treated as an operating expense and appearing on the income statement. There is no impact on the balance sheet and no capital cost allowance is taken. C) An operating expense is recorded on the income statement and the book value of the asset increases both the asset and the long-term liability sides of the balance sheet. No capital cost allowance is taken. D) Decomposed into interest and principle with the interest portion appearing on the income statement as interest expense and the principle portion increasing total assets and long-term liabilities on the balance sheet. Capital cost allowance is taken. E) Decomposed into interest and principle with the interest portion appearing on the income statement as interest expense and the present value of the principle portion increasing total assets and long-term liabilities on the balance sheet. No capital cost allowance is taken. 26) What is the interest rate that a plant manager is being charged if she decides to lease the robotic welders with no salvage value at $12,000 per year for ten years, starting with an immediate payment, instead of paying a negotiated cash price for them of $74,593.20? A) 22% B) 20% C) 18% D) 13% E) 10% 27) Kawartha Lakes Scenic Tours Inc. has 4 years left on their 20-year lease, at $10,667 per year, for one of their double-decker tour boats. It will return the boat to the leasing company. The fair value of the boat is $285,000 and expected useful life of the boat is 35 years. What is this is an example of? A) Standard Lease B) Open Lease C) Enterprise Lease D) Capital Lease E) Operating Lease 28) Marcos Mill Equipment sales and rental is bringing in a new type of 3-roller feeder. Its price from the manufacturer is $761. The company is expecting to lease equipment for four years with the payments starting immediately and then bring the feeder into its used equipment inventory at a cost of goods of $180. If the company requires a 12% return, what should the annual lease payment be? A) $63 B) $124 C) $190 D) $201 E) $240 29) Pioneer Logging owns a tug boat to manage floating booms of felled trees off the Queen Charlotte Islands. The boat was purchased in February of 2006 for $128,000. If the rate for the asset class is 15%, what is the amount of CCA (capital cost allowance) that the company can claim on their 2008 income tax return? A) $12,832 B) $13,872 C) $14,076 D) $15,096 E) $16,320 30) M Dana’s Dressmakers and Alterations Ltd. is looking at the purchase of several serging machines for their new third location. The company can buy the equipment for $6,000 and finance it with a three-year operating loan at 6% where interest is paid at the end of each year and the principal is paid at the end of the term. The capital cost allowance rate (CCA) is 25% and the income tax rate is 30%. What is the present value of the tax shield from the equipment purchase over the first three years if the cost of capital is 6%? A) $1,099 B) $1,165 C) $2,336 D) $3,664 E) $3,884