In a(n) ____________, the original owner becomes the lessee. a. Operating Lease
ID: 2774052 • Letter: I
Question
In a(n) ____________, the original owner becomes the lessee.
a. Operating Lease
c. Sale-Leaseback
d. Leveraged Lease
Masco is issuing new 15-year convertible bonds that can be exchanged for 40 shares of stock. If not for the convertibility feature, the bonds would carry a 9% interest rate. However, with the convertibility feature attached the bonds will pay a 7% annual coupon and can still be issued at the par value of $1,000. What is the value of the convertibility feature?
a) $78 b) $161 c) $182
Which is not an advantage of leasing (to the lessee)?
a. Lower upfront costs
b. Higher depreciation expenses
c. Greater access to financing
Which of the following statements is NOT CORRECT?
a. Both warrants and convertibles are types of option securities.
c. Return on Assets will fall after a Convertible Bond is exchanged for equity.
d. Off balance sheet financing may make a company appear less risky than it actually is because its stated debt ratio will appear lower.
Which statement is false?
a. A convertible bond gives the bondholder the right to exchange their bonds for a preset number of shares of stock.
b. Preferred stock always has a fixed dividend and maturity date.
c. A warrant is basically a long term option that is sold with bonds but that can be detached (bought and sold separately) from the bond
A 10-year convertible bond has a face value of $1,000 and pays an annual coupon of $50. The bond's conversion price is $40. The issuing company's stock currently trades at $30 a share. The company can issue straight (non-convertible) debt with an 8% yield. Which of the following statements is CORRECT?
b. The bond's conversion value is currently $750.
c. The bond's straight-debt value is $750.
d. The bond's straight-debt value is $1,000.
Explanation / Answer
Q:In a(n) ____________, the original owner becomes the lessee.
a. Operating Lease
c. Sale-Leaseback
d. Leveraged Lease
ANSWER:IN A SALE-LEASEBACK THE ORIGINAL OWNER BECOMES THE LESSEE.A sale and leaseback constitutes an arrangement where the seller of an asset leases back the same asset from the purchaser.
The lease arrangement is made immediately after the sale of the asset with the amount of the payments and the time period specified. Essentially, the owner of the asset becomes the lessee and the purchaser becomes the lessor in this arrangement.
Q:Masco is issuing new 15-year convertible bonds that can be exchanged for 40 shares of stock. If not for the convertibility feature, the bonds would carry a 9% interest rate. However, with the convertibility feature attached the bonds will pay a 7% annual coupon and can still be issued at the par value of $1,000. What is the value of the convertibility feature?
a) $78 b) $161 c) $182
ANSWER:NO OF SHARES INTO WHICH BOND IS TO BE CONVERTED=40
DURATION OF BONDS=15 YEARS
INTEREST RATE WITHOUT CONVERTIBILITY FEATURE=9%
ANNUAL COUPON WITH CONVERTIBILITY FEATURE=7%
PAR VALUE =$1,000
CONVERSION PRICE PER SHARE =$1,000/40=$25
Q:Which is not an advantage of leasing (to the lessee)?
a. Lower upfront costs
b. Higher depreciation expenses
c. Greater access to financing
ANSWER:POINT b.HIGHER DEPRECIATION EXPENSE IS NOT AN ADVANTAGE OF LEASING (TO THE LESSEE) BECAUSE DEPRECIATION BENEFIT IS ENJOYED BY LESSOR OR THE OWNER OF ASSET AND NOT THE LESSEE.
Q:Which of the following statements is NOT CORRECT?
a. Both warrants and convertibles are types of option securities.
c. Return on Assets will fall after a Convertible Bond is exchanged for equity.
d. Off balance sheet financing may make a company appear less risky than it actually is because its stated debt ratio will appear lower.
ANSWER: THE STATEMENT Return on Assets will fall after a Convertible Bond is exchanged for equity IS NOT CORRECT.
Q:Which statement is false?
a. A convertible bond gives the bondholder the right to exchange their bonds for a preset number of shares of stock.
b. Preferred stock always has a fixed dividend and maturity date.
c. A warrant is basically a long term option that is sold with bonds but that can be detached (bought and sold separately) from the bond
ANSWER:THE STATEMENT Preferred stock always has a fixed dividend and maturity date IS FALSE.PREFERRED STOCK HAS A FIXED DIVIDEND RATE BUT NO MATURITY DATE.
Q:A 10-year convertible bond has a face value of $1,000 and pays an annual coupon of $50. The bond's conversion price is $40. The issuing company's stock currently trades at $30 a share. The company can issue straight (non-convertible) debt with an 8% yield. Which of the following statements is CORRECT?
b. The bond's conversion value is currently $750.
c. The bond's straight-debt value is $750.
d. The bond's straight-debt value is $1,000.
ANSWER: NO.OF STOCKS INTO WHICH BOND IS TO BE CONVERTED=$1000/$40=25
BOND CONVERSION VALUE=NO.OF STOCKS INTO WHICH BOND IS TO BE CONVERTED * CURRENT STOCK PRICE=25*$30=$750 .HENCE THE STATEMENT THE BOND'S CONVERSION VALUE IS CURRENTLY $750 IS CORRECT.
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