End of Chapter Problems

Q 16.17 What are the main mechanisms through which creditors increase the likelihood of being repaid? Q 16.18 What are the main mechanisms through which shareholders increase the likelihood of ever receiving cash? Q 16.19 What are the main control rights for common stock, preferred stock, and bonds?

Q 16.20 Write down the payoff table and graph the payoff diagram for an insurance contract with a deductible of $100,000, a coverage of 80% of the loss, and a maximum payout of $1,000,000

Q 16.21 Draw a final payoff diagram for a stock and a bond, where the bond promises to pay off $500 in one year.

Q 16.22 A convertible zero bond that promises $20,000 can be converted into 100 shares of equity at its maturity date. If there are 8,000 such bonds and 1,200,000 shares outstanding, how would the payoff table (and diagram) for both bondholders and equity holders look like?

Q 16.23 Write down all bond features (variations) that you remember.

Q 16.24 What effect would you expect the Bush dividend tax cuts to have on preferred stock?

Q 16.25 A firm is financed with a senior bond that promises to pay $500, a junior bond that promises to pay $400 (of lower seniority but of equal maturity to the senior bond), equity, and a warrant. The warranty can be converted into equity which becomes half the equity in exchange for payment into the firm of $4,000. Write down the payoff table and then draw the payoff diagrams when the two bonds are due.

Q 16.26 What are notes?

Q 16.27 What are the main categories of long-term liabilities?

Q 16.28 What is commercial paper?

Q 16.29 What are the main categories of short-term liabilities?

Q 16.30 Explain how the capital structure of IBM changed from 2003 to 2005.

Q 16.31 Using various metrics, how has IBM's indebtness ratio changed? What are the main choices in measuring indebtness ratios, and what are their advantages and disadvantages?

file=corpclaims.tex 448 ■ Chapter 1B CORPORATE FINANCIAL CLAIMS

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