Merger problems

Question #1: Show the capital accounts at the end of the first year of operation for a firm that, at the beginning of the year, issued 50,000 shares of $1.50 par value common stock for $15 per share, repurchased 5,000 shares during the year at $20 per share, and paid out (at the end of the year) 40% of earnings as dividends with a 50 cent per share dividend.

Question #2: How do firms make initial public offerings and what are the costs of such offerings?

Question #3: Calculate the WACC for a firm with a debt‐equity ratio of 1.5. The debt pays 10% interest and the equity is expected to return 16%. Assume a 35% tax rate.

 Question #4: Select the best answer. Part A. With respect to the balance sheet, an increase in equity of $2,000 with an increase in net income to $2,500, leads us to believe:

A. the firm paid a dividend of $500.

B. the firm plowed $500 back into the company. C. $500 went into retained earnings.

D. debt increased by $2,000.

Part B. Dividend policy is determined by all of the following except:

A. the debt‐equity ratio.

B. the need for funds.

C. forecasting.

D. as a consequence of other planning decisions.

Question #5:Create the statement of sources and uses of cash from the following entries:

 Question #6:

Part A. Which of the following would not be a customary source of credit information on customers?

A. Dun and Bradstreet

B. Internal Revenue Service

C. Credit Bureau

D. Customer's bank

Part B. Which of the following is correct concerning terms of trade credit of 4/10, EOM, net 90?

A. The discount period expires on the last day of the month.

B. The invoice becomes delinquent 90 days after the last day of the month.

C. The discount period ends on the 10th day of the month following the invoice.

D. The discount period ends either 10 days after invoicing or at the end of the month, whichever is earlier.

Question #7: Energetic, Inc. believes that it can acquire Satisfied Industries and improve efficiency to the extent that the market value of Satisfied will increase by $5 million. Satisfied currently sells for $20 a share, and there are 1 million shares outstanding.

a. Satisfied's management is willing to accept a cash offer of $25 a share. Can the merger be accomplished on a friendly basis?

b. What will happen if Satisfied's management holds out for an offer of $28 a share?