Please answer all questions fully. You may upload a word document or type your answers directly into Moodle.

questions reflect the content of Chapter 15 & 19

1. The following is the abbreviated balance sheet for Bryant Mining.

Cash	$ 6,000		Debt	$ 0
Other Assets	$14,000		Equity	$20,000
Shares outstanding = 2,000

Bryant has just paid a cash dividend of $1.00 per share. Show what will likely happen to the firms balance sheet and share price after the dividend payment.

Cash	_____4,000_____		Debt	______0____
Other Assets	_____18,000_____		Equity	_____20,000_____

2. Refer to Bryant Mining in Problem 10. Becker Shembo owns 100 shares of Bryant, but he decides that he does not want his investment in the firm reduced.

1. Show how Becker Shembo can negate the dividend.
2. Repeat the analysis for a $2 dividend payment.

3. Madden Airlines is so strapped for cash that it has decided to scrap any plans for a cash dividend and to reward its shareholders with a stock dividend. Maddens share price is currently at $10 per share. There are 10,000 shares outstanding and its equity value is $100,000. Madden decides to keep its shareholders happy by providing 10 new shares for each one share held. Patrick Summerhill, a loyal Madden shareholder, has 10 shares before the stock dividend. Explain to Summerhill both the good news and the bad news of the stock dividend.

4. Choose one of the "Kal draws" videos and apply the concept to current events (many countries or just one country) in the world. (The length should be several paragraphs up to a page, with citations.)

5. Drunken Sailor Oil Corporation is negotiating the purchase of 1 million barrels of oil to be delivered and paid for in exactly 1 year. Drunken Sailor Oil Corporation is willing to pay $25 per barrel because they can sell the oil in advance to oil refineries. For political reasons, the oil exporter wants the contract expressed in Danish kroner.

1. What price per barrel of oil expressed in Danish kroner is equivalent to $25 if the Danish krone exchange rate is $0.25?

1/0.25= 4 Danish kroner

2. If the contract is signed at a price of 110 Danish kroner per barrel and the oil corporation does not use futures contracts, in terms of U.S. dollars how much will it pay for the 1 million barrels of oil if the exchange rate per Danish kroner rises to $0.30?

3. If the oil corporation buys the Danish kroner in the futures markets for $0.26, how much will the oil cost in U.S. dollars (if the price of the oil was 110 kroner)?

6. Returning to Drunken Sailor Oil Corporation in the problem above. :

1. If the oil corporation locks in an exchange rate of $0.26 per Danish krone but the exchange rate falls to $0.20 at the end of the year, how much money will the firm have lost due to its decision to use futures contracts?
2. If the oil corporation locks in an exchange rate of $0.16 per Danish krone and the exchange rate rises to $0.25 at the end of the year, how much money will the firm have gained due to its decision to use futures contracts?

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