6. (10 points) Northern Lights Corp. stock trades at $55 per share and there are 72...

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6. (10 points) Northern Lights Corp. stock trades at $55 per share and there are 72 million shares outstanding. The management would like to raise $190 million in an SEO. If the underwriter charges 7% of gross proceeds, and all the shares are primary shares sold to new investors, what percentage of the company will be owned by the new investors? 7. (10 points) Stuart Mining is offered a $4,000,000 line of credit for three months at an APR of 6%. The bank requires that the firm keep an amount equal to 10% of the loan principal in an account with the bank as long as the loan remains outstanding. This account pays 2% APR with quarterly compounding. Calculate the actual three-month interest paid on this loan and the actual interest rate paid in EAR terms. 8. (10 points) A company has a current tax rate of 30% and faces a 20% chance that the its output prices will drop and it will lose $100,000 over the next year. The firm would then be in a 15% tax bracket if it faces a loss. Compute the net present value (NPV) from purchasing insurance if the rate of interest is 5% and the beta of the output prices is 0. 9. (10 points) Consider two firms, Left Company and Right Enterprises, both with earnings of $2.50 per share and 15 million shares outstanding. Left is a mature company with few growth opportunities and a stock price of $7 per share. Right is a new firm with much higher growth opportunities and a stock price of $16 per share. Assume Right acquires Left using its own stock and the takeover adds no value. What is the change in Right's price-earnings ratio as a result of the acquisition? 6. (10 points) Northern Lights Corp. stock trades at $55 per share and there are 72 million shares outstanding. The management would like to raise $190 million in an SEO. If the underwriter charges 7% of gross proceeds, and all the shares are primary shares sold to new investors, what percentage of the company will be owned by the new investors? 7. (10 points) Stuart Mining is offered a $4,000,000 line of credit for three months at an APR of 6%. The bank requires that the firm keep an amount equal to 10% of the loan principal in an account with the bank as long as the loan remains outstanding. This account pays 2% APR with quarterly compounding. Calculate the actual three-month interest paid on this loan and the actual interest rate paid in EAR terms. 8. (10 points) A company has a current tax rate of 30% and faces a 20% chance that the its output prices will drop and it will lose $100,000 over the next year. The firm would then be in a 15% tax bracket if it faces a loss. Compute the net present value (NPV) from purchasing insurance if the rate of interest is 5% and the beta of the output prices is 0. 9. (10 points) Consider two firms, Left Company and Right Enterprises, both with earnings of $2.50 per share and 15 million shares outstanding. Left is a mature company with few growth opportunities and a stock price of $7 per share. Right is a new firm with much higher growth opportunities and a stock price of $16 per share. Assume Right acquires Left using its own stock and the takeover adds no value. What is the change in Right's price-earnings ratio as a result of the acquisition?

Answer rating: 100% (QA)

Northern Lights Corp Ownership 6 We can calculate the percentage ownership of new investors using the following steps Capital Raised We know the underwriter charges take a 7 cut so we need to find the ... View the full answer