Nelson Mfg. owns a manufacturing facility that is currently sitting idle. The facility is
located on a piece of land that originally cost $159,000. The facility itself cost
$1,460,000 to build. As of now, the book value of the land and the facility are $159,000
and $458,000, respectively. The firm owes no debt on either the land or the facility at
the present time. The firm received a bid of $1,500,000 for the land and facility last
week. The firm's management rejected this bid even though they were told that it is a
reasonable offer in today's market. If the firm was to consider using this land and
facility in a new project, what cost, if any, should it include in the project analysis?
Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow
at 10 percent. Bruce currently has no debt, and its cost of equity is 20 percent. The tax
rate is 31 percent. What will the value of Bruce & Co. be if the firm borrows $54,000
and uses the loan proceeds to repurchase shares?
Franklin Minerals recently had a rights offering of 1,000 shares at an offer price of $10
a share. Isabelle is a shareholder who exercised her rights option by buying all of the
rights to which she was entitled based on the number of shares she owns. Currently,
there are six shareholders who have opted not to participate in the rights offering.
Isabelle would like to purchase the unsubscribed shares. Which one of the following
will allow her to do so?
A. standby provision
B. oversubscription privilege
C. open offer privilege
D. new issues provision