SOLVED

1) Which of the following is an internal source of financing? A) Retained earnings B) Preferred shares C) Debentures D) Accounts receivable E) Common shares 2) Outstanding warrants for the common shares of Buell Corp. have an exercise price of $1.50. The present price for Buell’s shares is $2.00 per share. If Buell’s shares rose by another 20% by what percentage would the value of the warrants increase by? A) 20% B) 40% C) 50% D) 60% E) 80% 3) Outstanding warrants for the Buell Corp. have an exercise price of $1.50. The current market price for Bull shares is $1.75. How much would it cost a purchaser to buy 3,000 warrants? A) $500 B) $750 C) $4,500 D) $5,000 E) $5,250 4) Raven Corporation has 4.8 million shares, 20% of which are cumulative preferred paying a fixed 5% of the $20 face value of the shares. The rest are common shares. Because of loan covenants, the company is restricted to paying out a maximum of 24% of its annual net income after tax in dividends or any dividends if after tax profit drops below $4.5 million. Over the past four years Raven has had net income after tax of $8 million, $6 million, $3 million, $6 million. What is the total value of dividends paid out to common shares in the past four years if the company tries to achieve a maximum payout? A) $960,000 B) $1.2 million C) $1.44 million D) $2.16 million E) $2.32 million 5) Which of the following is/are pledged as a form of loan security called a floating charge? A) First claim on a proportion of future sales revenue B) All of the assets of the business C) Buildings or land or any other appreciating asset D) A third party’s guarantee of payment E) Inventory and accounts receivable 6) Five years ago, Raleigh Corporation issued $5 million in 20-year bonds, face value of $1000 and interest at 10% compounded semi-annually, paid twice a year. Interest rates have dropped to 8%. The bonds had a call provision that allowed Raleigh to buy them back at 102.5% of face. Ignoring issuing costs, what is the difference between the total exercise price and the fair value of the bonds? A) Save $61,840 B) Save $130,070 C) Save $174,340 D) Save $739,602 E) Lose $1,063,160 7) What is an advantage of a loan covenant to the borrower? A) Greater security against risk exposure. B) Greater clarity with respect to repayment terms. C) A more appealing debt issue to the lender. D) Increased opportunity for subordinate loans. E) The option for early loan repayment. 8) A form of funds available to non-Canadian borrowers, known as Maple bonds, were developed. Why are attractive to investors? A) Canadian investors receive an interest adjustment allowing for a lower price on the bonds. B) Canadian investors are rated AAA and more likely to support their obligations. C) Canada as a stable efficient capital market allows foreign borrowers to more easily interact with the US regulators. D) The Canadian capital pool is large enough to warrant the costs of establishing these programs. E) Foreign borrowers find that Canada has low interest rates and, for some, their currencies have appreciated against the Canadian dollar. 9) On April 15, with the Canadian dollar (CAN) trading at $1.016 to one US dollar (USD), Lethbridge Saddlery Ltd. took delivery of $250,000(USD) worth of saddles and tack from a Montana supplier which Lethbridge paid through an operating loan at 5% in US currency. Lethbridge planned to repay the loan out of sales revenue 90 days later. If the exchange rate went to $0.980 CAN to one USD when the loan matured, how much did Lethbridge Saddlery Ltd. pay in interest in Canadian dollars? A) $3,034 B) $3,131 C) $3,020 D) $12,303 E) $12,700 10) Emmilou’s Designs, a Canadian exporter, operates in international currencies to transact business on both sides of the Atlantic and so, at a time when the Canadian dollar (CAN) was at $0.97 of the US dollar (USD) and the Euro was trading at .625USD, Emmilou Designs issued 5-year Eurobonds which provided them with the equivalent of $5,000,000CAN. At maturity, the Canadian dollar was worth $1.01USD and the Euro at 0.635USD. What was the financial impact of the exchange rates, in Canadian dollars, in the repayment of the face value of the Eurobonds at maturity? A) Cost $50,000 B) Saved $192,756 C) Saved $121,188 D) Saved $2.9 million E) Cost $4.6 million 1