Question 1. 10 points) Both Berkley and Oakley are large public corporations with subsidiaries…


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Question 1. 10 points) Both Berkley and Oakley are large public corporations with subsidiaries… 1 answer below » Question 1. 10 points) Both Berkley and Oakley are large public corporations with subsidiaries throughout the world. Berkley uses a centralized approach and makes most of the decisions for its subsidiaries. Oakley uses a decentralized approach and its subsidiaries make many of their own decisions. a. Would the agency problem be more pronounced for Berkley or for Oakley? Explain. b. Would agency costs likelybe higher for Berkley or Oakley? Why? c. Discuss a major advantage and a major disadvantage to a centralized approach such as Berkley uses. d. Discuss a major advantage and a major View complete question » Question 1. 10 points) Both Berkley and Oakley are large public corporations with subsidiaries throughout the world. Berkley uses a centralized approach and makes most of the decisions for its subsidiaries. Oakley uses a decentralized approach and its subsidiaries make many of their own decisions. a. Would the agency problem be more pronounced for Berkley or for Oakley? Explain. b. Would agency costs likelybe higher for Berkley or Oakley? Why? c. Discuss a major advantage and a major disadvantage to a centralized approach such as Berkley uses. d. Discuss a major advantage and a major disadvantage to a centralized approach such as Oakley uses. e. Which is better, a centralized or decentralized approach? Explain. Document Preview: Brigham 14e Page of
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Brigham 14e Page of
Brigham 14e Page of
FINC 5880

Session 9
b. Calculate the dollar coupon amount per bond with warrants.
Yield on straight bonds
Warrant market value @ P=$30)
Exercise price
# of warrants per bond
Par value
Bonds-life and par value
Stock price
a. Calculate the value of the debt portion of the bonds with warrants.
d. Calculate the value of the company’s equity, using equation: Vs = Vops – debt
Tax rate
Market risk premium
Amount of debt
Beta
Debt interest rate
Constant growth rate
Target debt in capital structure
Shares outstanding
c. Calculate the implied annual interest rate on the futures contract.
Net income
Taxes
Net sales
Income to Common SHs
Dividends on $8 PS
Dividends on $5 PS
EBT
Other income
Net operating income
Operating expense
Total claims
Total assets
Retained earnings
Common stock, $1.00 par value (5,000,000) shares
Advance payments
Net fixed assets
Current liabilities
Current Assets
$8 preferred stock, no par, callable at 100 (80,000 shares)
$5 preferred stock, $100 par value (1,000,000) shares
FCF
0
b. Calculate weighted average cost of capital, using equation: WACC = W
d
r
d
(1-%) + w
s
r
s
c. Calculate the value of operations, using equation: V
ops
= FCF
0
(1+g)/WACC – g)
a. Calculate the required rate of return on equity using equation: r
s
= r
RF
+ RP
M(
b
)

Prior to Reorganization
After Reorganization
r
RF
e. Calculate the current value of the company’s stock.
d. Calculate the debt ratio before and after the reorganization?
e. Would the common stockholders be in favor of the reorganization? Why or why… Attachments: FINC-5880-Que….xlsx View less » Jul 29 2015 05:50 PM

Answer

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