Chapter 16 – Long-Term Debt and Lease Financing
109. Which of the following are advantages of leasing?
110. Which one of these conditions must be met for a lease to qualify as a capital lease?
111. An operating lease
Chapter 16 – Long-Term Debt and Lease Financing
112. Long-term financing leases currently
113. Bond ratings are significantly based on all of the following except:
114. An advantage to the corporation of issuing zero coupon bonds is:
Chapter 16 – Long-Term Debt and Lease Financing
115. An investor would consider investing in a zero coupon bond because
116. Floating rate bonds provide the following advantage
117. The benefits of debt to the corporation include all of the following except:
Chapter 16 – Long-Term Debt and Lease Financing
118. Which of the following statements regarding the June 2009 bankruptcy of General
Motors is false?
Chapter 16 – Long-Term Debt and Lease Financing
119. Match the following with the items below:
A legal contract covering every detail of a bond
The point at which the principal value of a bond is
4. after-acquired
5. subordinated
Payment to the holder will take place only after the
A loan based on the use of real property as
Indicates the loan was obtained by pledging assets
A method of retiring bonds in an orderly process
Arise when a bond issue has several different
A debt instrument which pays interest at a rate
12. mortgage
A debt instrument for which corporations incur only
one cash outflow-the face value of the instrument at
A requirement in the bond issue stipulating that any
new equipment purchased after the issue be placed
Chapter 16 – Long-Term Debt and Lease Financing
120. Match the following with the items below:
1. coupon
A long-term lease that has many of the characteristics of
A method of retiring bonds in an orderly process over the
4. operating
The process of retiring an old bond issue before maturity
Are designated by the degree of risk by Standard and
Equals the yearly dollar interest payment divided by the
7. yield to
The annualized rate-of–return an investor will receive if he
Indicates the annual dollar amount of income from a
A short-term nonbinding obligation that is easily
10. current
Bonds payable or denominated in the borrower’s currency,
Chapter 16 – Long-Term Debt and Lease Financing
121. Gray House is issuing bonds paying $95 annually that will mature fifteen years from
today. The bond is currently selling for $980.
Calculate:
a) Coupon Rate
b) Current Yield
c) Yield To Maturity
Chapter 16 – Long-Term Debt and Lease Financing
122. Dairy Corp. has a $20 million bond obligation outstanding which it is considering
refunding. The bonds were issued at 8% and the interest rates on similar bonds have declined
to 6%. The bonds have five years of their 20-year maturity remaining. The new bond will
have a 5-year maturity. Dairy will pay a call premium of 5% and will incur new underwriting
costs of $400,000 immediately. There is no underwriting cost consideration on the old bond.
The company is in a 40% tax bracket. To analyze the refunding decision, use a 5% discount
rate. Should the old issue be refunded?
Chapter 16 – Long-Term Debt and Lease Financing
Outflows
Chapter 16 – Long-Term Debt and Lease Financing
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123. Shannon Corporation has two bonds outstanding. Both bonds have coupon rates of 7%.
Current yields for bonds of equal risk are 8%. Bond A has a maturity of 20 years, while Bond
B has a maturity of 10 years. Interest is paid semiannually. Calculate the following for both
bonds using semiannual analysis.
a) If market rates for bonds of equal risk fell to 6%, what would be the maximum price an
investor would be willing to pay for these bonds?
b) If market rates for bonds of equal risk remained at 8%, what would be the bonds’ current
worth?
c) If market rates for bonds of equal risk rose to 10%, what would be the bonds’ theoretical
value?
Chapter 16 – Long-Term Debt and Lease Financing
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Chapter 16 – Long-Term Debt and Lease Financing