• Reference your output. There is no limit on the Words but I would appreciate it if you would write precisely, concisely and to the point.

Assignment Question: LO6 (5 - marks)

The Management of Rose's Labs decided to go private in 2003 by buying all 3 million outstanding share at $18.50/ share. By 2005, management had restructured the company by selling the petroleum research division for $16 million, the fiber technology division for $9.5 million, and the synthetic products division for $20 million.

Because these division had only been marginally profitable, Rose Labs is a stronger company after the restructuring. Rose Labs is now able to concentrate exclusively on the contract research and will generate earning per share of $1.50 this year. Investments dealers have contacted the firm and indicated that, if it returned to the public market, the 3 million share it purchased to go private could now be reissued to the public at the P/E ratio of 14 times earnings per share.

1. What was Initial cost to Rose Labs to go private?
2. What was the total value to the company from ( 1) the proceeds of the division that were sold and (2) the current value of 3 million shares (based on the current earnings and an anticipated P/E of 14 times) ?
3. What is the percentage return to the management of Rose Labs from restructuring? Use answers from 1. and 2. to determine this value.

Assignment Question: (LO7) (2 - marks)

Take the following list of securities and arrange them in order of their priority of claims:

• Preferred Stocks
• Senior debentures
• Subordinated debentures
• Senior secured debt
• Common stock
• Junior secured debt.

Assignment Question: (LO7) (1.5 - marks)

Bonds of different risk classes have a spread between their interest rates. Is this spread always the same? Why? Illustrate.

Assignment Question: (LO7) (1.5 - marks)

In the lease - versus - purchase decision, why is the discount rate the after tax cost of debt. Illustrate.