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Case 11 - Precision Tool Company

(also cited as Case 22 in original casebook)

Topic - Investment Banking

(16^th edition - textbook)

Omit 9, 10

1. Flotation = underwriting. 420,000 / 8,415,000 (1,275,000 + 7,140,000) = 5% (answer). Published average for $2-10 million new common stock = 13%.

2. a. Textbook examples on pages 278-80 (Chapter - Section - 8-2A). Expected price - 1-year option price X shares = answer. b. Example: (420,000 + 470,000) / (8,415,000 + 850,000) = 9.6% (answer).

3. Your opinion / no textbook example

4. Your opinion / no textbook example

5. Partners' shares / total shares = % control (see Table 2 - 1^st column is off by 1 line).

6. Your opinion / no textbook example

7. 75-7 (3-3), 119-20 (4-4B), 608-11 (17-4 A). See Table 1 1992 income statement and projections given in case (examples: 10% increase in sales for 1993 = $14,135,000, cost of goods sold = 56% of current (1992) sales = 1993 $7,976,100). Examples for 1993 stock financing: times-interest-earned ratio = 2,763,000 / 850,000 = 3.25, fixed charge coverage = (2,763,000 + 600,000) / (850,000 (interest) + 600,000) = 2.32, cash flow coverage = (2,763,000 + 600,000 + 850,000 (depreciation)) / (850,000 (interest) + 600,000 (lease)) = 2.91. Under junk bond financing, interest = junk bonds $ amount X interest rate + current interest (850,000). Small differences in numbers are probably due to rounding.

8. Your opinion / no textbook example

Case 12 - Julian Eastheimer & Company

(also cited as Case 28 in original casebook)

Topic - Financing Alternatives

(16^th edition - textbook)

1. Pages 117-20 in textbook (Chapter-Section 4-4), 233 (7-1), 319-22 (9-1), 478-9 (Chapter14 two-page introduction), 483-5 (14-2 - 2B), 506-9 (14-5), 589-90 (16-13), 708-13 (Chapter 20 two-page introduction, 20-1, 20-2 - just first page), 719 (20-3 - just first page), 723 (20-4 - just first paragraph), 728-30 (20-4 C D 20-5). Hint: look at current debt ratio comparison with industry average, P/E ratios, and common stock prices to determine appropriate financing for some of the companies. Please provide a brief explanation of why you selected a particular financing. Alternative answers are possible as long as you provide reasons/rationale for your matching selections.

References

• Brigham, E. F., & Daves, P. R. (2020). Intermediate Financial Management (16th ed.). Cengage Learning.
• Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2019). Corporate Finance (12th ed.). McGraw-Hill Education.
• Uber Technologies, Inc. (2019). Initial Public Offering Prospectus.
• Fiji Government. (2010). Fiji Competition and Consumer Commission Act 2010.