Question 3
Suppose payments are made at the end of every year, determine the annual payment required to retire a $50,000 loan with a term of 5 years and an interest rate of 10%; how much of this payment represents interest at the end of year 1?

a. $8,189.87; $5,000
b. $13,189.87; $5,000
c. $13,189.87; $8,189.87
d. $13,189.87; $13,189.87
e. $5,000; $5,000

Question 22
Bu-Buy owes $6 million and has a market value of assets of $4.2 million. Bankruptcy administration costs of $700,000, unpaid wages of $600,000, and other payments have resulted in $1.8 million in funds available for unsecured creditors, whose claims total $5 million. Because there are no subordinated claims, the settlement rate for the unsecured creditors is:

a. 30 percent
b. 36 percent
c. 43 percent
d. 70 percent
e. 84 percent

Question 23
You must decide whether your firm should be reorganized or liquidated. Reorganization will require issuance of $200,000 of new equity, while if the company were liquidated $800,000 would be available to its common stockholders. If, after reorganizing, the annual earnings for your company are projected to be $100,000 and the company would trade at a price/earnings ratio of 7, you should suggest the firm be __________, because the firm's common stock value would be __________ greater than the alternative.

a. reorganized; $300,000
b. reorganized; $200,000
c. reorganized; $100,000
d. liquidated; $100,000
e. liquidated; $300,000

Question 24
Sure-Profit is executing an IPO in which 20 million shares will be offered at a price of $10 per share. The underwriting fee is 7%, and the shares are expected to sell for $13 per share by the end of trading on the first day. The cost of this issue to Sure-Profit includes __________ in underwriting fees and __________ resulting from underpricing.

a. $18.2 million; $70 million
b. $18.2 million; $60 million
c. $14 million; $60 million
d. $14 million; $30 million
e. $7 million; $30 million