Relate price changes in bond markets to price changes in stock markets. Explain why prices move or do not move together.

Explore of each of the questions below and provide your perspective :

1. A company faced by an elastic demand curve will always benefit by decreasing price. True or false? Explain.
2. In 2002 the U.S. Postal Service increased first-class postage rates from 34₵ to 37₵. The service had been losing money. One of the reasons is increased competition from companies such as United Parcel Service and Federal Express. Another reason is the use of faxes and e-mail, as well as electronic bill payment. With this decrease in demand for postal services, why do you think that the Postal Service is seeking a rate increase?

The Rabe Company has just gone public under a firm commitment agreement and sold (i.e. floated) 4.1 million shares to the public. Rabe stock went public (i.e. begin to trade over the exchange) at $34.40. The first day closing price of Rabe stock was $41 per share. Rabe paid $905,000 in legal and other direct costs, $250,000 in indirect costs, and an underwriter’s fee of $2.40 per share.

Required:

i.           Compute the net amount raised by the Boeing Company as a result of the IPO.

ii.          Compute the Underpricing cost or money left on the table.

XYZ Pharmaceutical, Inc. just got FDA approval for their new drug, Viagrina. The company has never paid a dividend, but they expect to pay one for the first time by the end of the year. The expected dividend is $3.00 per share and the company expects that dividend to increase at a rate of 20% for five years. After that, XYZ expects to see its dividend growth limited by the growth rate the US economy, which on average is 4.5% per year. If the required rate of return for other startup pharmaceutical companies like XYZ is 11%, what should be the fair price of XYZ’s stock today?

Hillside issues $4,000,000 of 6%, 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,456,448.

Required

1. Prepare January 1, 2017, journal entry to record the bonds’ issuance.

2. For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense.

3. Determine the total bond interest expense to be recognized over the bonds’ life.

4. Prepare the first two years of an amortization table like Exhibit 14.7 u

You are the CEO of United Airlines and you have had a pretty difficult month. First, you kicked young women off of a plane because they were wearing yoga pants, then you forcefully dragged a doctor off a plane against his will. While your stock price has mostly rebounded, you a loss of value of $1 billion the day after the incident with the doctor. You know your organization needs a culture change. Apply Kotter’s 8-step model of change,to the United organization – what would be your strategy for remaking the organization? Be as specific as you can.

Stockholm Co. accounts for its inventory using the last-in, first-out (LIFO) method. The data below concern items in Stockholm Co.’s inventory.

The cost amount that Stockholm Co. should use in the lower-of-cost-or-market (LCM) comparison of stuff is

Group of answer choices

$105

$108

$106

$137

Jupiter Aviation Inc. has 2 different bonds outstanding. Bond A has a face value of $35,000 and a maturity of 10 years. It makes no coupon payments over the life of the bond. Bond B also has a face value of $35,000 with 10 years to maturity. It makes no payments for the first 5 years, then pays $1,000 every 6 months over the subsequent 2 years, and finally pays $2,000 every 6 months over the last 3 years. If the required return on both of these bonds is 5% compounded semi-annually, what is the current price of bond A? Of bond B?