1)A convertible bond has two separate sources of value, the bond investment valu
ID: 2671204 • Letter: 1
Question
1)A convertible bond has two separate sources of value, the bond investment value and the bond conversion value.
2)A forced conversion will alter the corporate balance sheet.
3)Diluted earnings per share must include all convertible securities.
4)A call provision is a commonly used device by a corporation to force conversion into common stock.
5)In order to calculate basic earnings per share, the earnings after taxes have to be adjusted for the elimination of the convertible bond interest expense.
6)Vertical integration represents acquisition of a competitor.
7)Vertical integration is usually prohibited or severely restricted by government antitrust regulations.
8)Mergers often improve the financing flexibility that a larger company has available.
9)If the acquiring firm's P/E ratio is greater than the P/E of the acquired firm, the surviving firm will automatically get an increase in E.P.S.
10)Leveraged Takeovers occur to firms that have an unusually large cash/total assets position.
11Synergy is said to take place when the whole is less than the sum of the parts.
12)Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.
13)In Germany, restrictions limiting labor layoffs have encouraged companies to reduce investment there. Thus, in the long-run, these labor protection laws actually can be expected to result in higher unemployment in Germany.
14)The purchasing power parity theory of exchange rates suggests that exchange rates will adjust until the cost of equivalent goods is approximately equal in each country.
15)The increase in supply of short-term investments in the U.S. by Chinese investors when rates are higher in the U.S. is an example of purchasing power parity.
16)When a bank issues a letter of credit, the bank absorbs ALL of the credit risk to the exporter.
17)
d. buy depressed stock of quality companies when merger talks are discontinued.
a. to buy stock they feel is considerably underpriced. b. for employee stock options. c. to use in a merger. d. all of theseExplanation / Answer
1) T 2) F 3) F 4) T 5)F 6)T 7)T 8)T 9) F 10) T 11) F 12) F 13) T 14) T 15) T 16) F 17) A 18) D 19) A 20) C
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