THE INTERNATIONAL UNIVERSITY (IU) – VIETNAM NATIONAL UNIVERSITY – HCMC
FINAL EXAMINATION
Date: from January 17, 2022, 3:15 pm to January 18, 2022, 3:15 pm
Duration: 1 day
Student ID: ..................................
Name: ..............................................
SUBJECT: CORPORATE FINANCE
School of Business
Lecturer
Signature:
Signature:
Full name:
Full name: Trinh Thu Nga
GENERAL INSTRUCTION(S)
1. This is an open-book, open-note examination.
1. Submit your answer file on Blackboard. Make sure that the file is successfully uploaded before
you log out. Only if you cannot submit it on Blackboard, you can send it via email:
ttnga@hcmiu.edu.vn. Blackboard or email submission must be before the due date.
2. The format of your answer file can be Word or pdf. It’s fine to have handwritten answers but
need to combine into one file.
GOOD LUCK!
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There are five questions.
Question 1: (25 points)
a. Explain the stock price behavior on the ex-dividend date and why that happens. (7 points)
b. Explain why stock repurchase has become an important way to distribute earnings to
stockholders. In other words, discuss advantages of stock repurchase compared to cash
dividends. (10 points)
c. Discuss what firms should or should not do regarding dividend and payout policy under two
scenarios: firms without sufficient cash, firms with sufficient cash. (8 points)
Question 2: (15 points)
a. Explain the reasons for the stock price behavior on the announcement of a Seasoned Equity
Offering (SEO). (7 points)
b. Mercer Corporation is attempting to raise $7,800,000 in new equity with a rights offering. The
subscription price will be $41+($0.5xA) per share (with A: the last digit of your student ID;
for example, if the last digit is 3, the subscription price is $42.5 per share). The stock
currently sells for $48 per share and there are 250,000 shares outstanding. What is the value of
a right? (8 points)
Question 3: (20 points)
Part A: Why does the lessor often have higher tax rate than the lessee? (5 points)
Part B: The Myers Inc. is considering the purchase of a new machine for $34,000+($500xA) (with
A: the last digit of your student ID). The machine is expected to save the firm $12,800 per year
in operating costs over a 5-year period, and can be depreciated on a straight-line basis to a zero
salvage value over its life. Alternatively, the firm can lease the machine from Stuart Leasing
Company for $6,700 per year for 5 years, with the first payment due in 1 year. The Myers' tax rate
is 25% and the before-tax cost of debt is 9%. The tax rate of Stuart Leasing is 36%.
a. Using NPV analysis, should Myers lease or buy the machine? (5 points)
b. Calculate the maximum lease payment that Myers can pay. (5 points)
c. Calculate the break-even lease payment for Stuart Leasing. (5 points)
Question 4: (20 points)
Baking Inc. and Sweet Co. are all-equity firms. Baking Inc. has 97,000+(100xA) (with A: the last
digit of your student ID) shares of stock outstanding at a price of $40 a share. Sweet Co. has
64,000+(100xA) (with A: the last digit of your student ID) shares of stock outstanding at a price
of $29 a share. Baking Inc. is analyzing the possible acquisition of Sweet Co.
Baking Inc. believes the acquisition will increase its total after-tax annual cash flow by
$73,000+($500xA) (with A: the last digit of your student ID) indefinitely. The appropriate
discount rate for the incremental cash flows is 20 percent.
a. Baking Inc. is acquiring Sweet Co. for $2,030,000 in cash. What is the NPV of the
acquisition? What is the new share price of the merged firm after the acquisition? (10
points)
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b. Suppose stock consideration is used (Baking Inc. offers to pay Sweet Co. in stock). Sweet
Co. is acquired for the $2,000,000 value of Baking’s stock. What is the new share price of
the merged firm after the acquisition? What is the NPV of the acquisition? Should Baking
Inc. pay in cash or stock? (10 points)
Question 5: (20 points)
Analyze an IPO of a company assigned to you. Use the table below and the last digit of
your student ID to know the name of your assigned company.
Below are steps and questions that guide you to write your analysis.
Go to the EDGAR website.
https://www.sec.gov/edgar/searchedgar/legacy/companysearch.html
1.
2.
3.
4.
5.
6.
7.
Search the filing documents using the company name. After you see the list of the
documents, enter “424B” in the Filing Type box, click Search. Pick the oldest “424B”
(because the oldest one is the IPO, others are either SEOs or bond issues) and click on the
number (red color) in the “File/Film Number” column associated with this IPO to open the
list of filing documents of the IPO.
Determine whether it was a firm commitment, best effort, or Dutch auction offering.
The registration statement (S-1 or S-3): Find the underwriting syndicate (including lead
underwriter, bookrunners, and co-managers), the filing date, the registration fee, the
number of shares to be offered, and the first price range. If the number of shares to be
offered and the first price range are not shown on the registration statement, you need to
go to each amendment (S-1/A or S-3/A) until you see the amendment that first has this
information.
How many times the price range and/or the number of shares was amended. What was the
new price range and number of shares, in which amendment and when?
The final prospectus (424B): Find the offer price, the number of shares offered, the offer
date, and the underwriting spread. In which stock market is the company’s stock listed after
the IPO? Information about the underwriting syndicate (look at the “Underwriting” section
from Table of Contents)?
Find information about Green Shoe option (over-allotment option), lock-up agreement,
quiet period (if any), price stabilization (if any), etc. in the final prospectus.
Go to Yahoo!Finance to find the close price on the first trading day and calculate the
underpricing of the IPO. Check whether there is price stabilization for the IPO stock in the
aftermarket by examining the close price over the next 30 days after the offer date.
In addition to the information about the offering and underwriting, what are other major
contents of the final prospectus, briefly analyze them. (see Table of Contents and pick three
other major contents that you think interesting.)
Appendix:
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Last digit of your student ID
0
1
2
3
4
5
6
7
8
9
Company name
Jazz Pharmaceuticals
Douglas Dynamics, Inc
Potbelly
Fate Therapeutics
General Motors Co
Palo Alto Networks
Five Below
Supernus Pharmaceuticals
Splunk Inc
Enphase Energy
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