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Advanced Financial Management (MBA)

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1. An investment banker enters into a best efforts arrangement to try and sell 8 million shares of stock at $20 per share for Kemp Corporation. The investment banker incurs expenses of $1 million in floating the issue and the company incurs expenses of $750,000. The investment banker will receive 8 percent of the proceeds of the offering.

a. If the offering is successful and sells out at the expected price of $20, how much money will the company receive?
b. If the offering is successful and sells out at the expected price of $20, how much money will the investment banker receive?
c. If the offering is partially successful and 6 million shares are sold at a price of $15, how much does the company receive?
d Same facts as part c. How much does the investment banker receive?
e. Who bears more risk with a best efforts deal, the company or the investment banker? Why?

2. The Aleander Company plans to issue $10,000,000 of 20-year bonds next June , with semiannual interest payments. The company's current cost of debt is 9 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government t-bond futures. The following settle data are available for t-bond futures.

Month Settle
(1) (5)
Dec 102-17
Mar 101-01
June 100-12

a. Calculate the present value of the corporate bonds if rates increase by 2 percentage points.
b. Calculate the gain or loss on the corporate bond position.
c. Calculate the current value of the futures position.
d. Calculate the implied interest rate based on the current value of the futures position.
e. Interest rates increase as expected, by 2 percentage points. Calculate the present value of the futures position based on the rate calculated above plus the 2 points.
f. Calculate the gain or loss on the futures position.
g. Calculate the overall net gain or loss.
h. Is this problem an example of a perfect hedge or a cross hedge? Is it an example of speculation or hedging? Why?

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Please see the attached Excel file. There is one worksheet for each problem. Notice that for each worksheet, there ...

Solution Summary

Advanced financial management is examined. The present value of the corporate bonds are determined.

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Pro forma Financial Statements

I need to complete a set of proforma financial statements using the attached mini case study. I also need to answer a few questions about the financial statement. I will attach the case study in adobe. It begins on pg 99 and is about a company Home Safety Inc. the finacial statements need to be done in Microsoft excel. I will also provide some check figures that my teacher provided below.

Mini-Case Study: Home Safety, Inc

2003 est
Net Income $8,230
Total Assets $98,988
Total Liabilities $48,910
Cashflow from Operating Activities ($17,323)
Cashflow from Investing Activities ($15,998)
Cashflow from Financing Activities $33,736

These are the four questions that need to be answered.

1) How much revenue growth is needed to achieve the desired profitability?

2) Based on your review of the pro forma financial statements, what general observations and recommendations can you make?

3) Do you believe that these pro forma statements will meet the company's overall goals and objectives? Why or why not?

4) What other assumptions and considerations are necessary for this plan to work?

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