Corporate Finance – BBA2103

Tutorial 9 (Questions)
Corporate Finance – BBA2103
1. What are the two types of lease agreements?

2. May businesses issue notes, which carry the right for holders to convert them into ordinary
shares in the same business at a later date? Why might a business choose to issue
convertible notes rather than make an issue of equity in the first place?

3. The ordinary shares of Anglia Paper Company are currently trading at £3.20. Existing
shareholders are offered one new share at £2 for every three held. What is the value of the
rights issue ?

4. Polecat plc has 18 million £0.50 ordinary shares in issue. The current stock market value
of these is £1.70 per share. The directors have decided to make a one-for-three rights issue
at £1.25 each. Julie owns 3,000 Polecat ordinary shares. Assuming that the rights issue will
be the only influence on the share price:

(a) What, in theory, will be the ex-rights price of the shares (that is, the price of the
shares once the rights issue has taken place)?
(b) For how much, in theory, could Julie sell the ‘right’ to buy one share? Will it
matter to Julie if she allows the rights to lapse (that is, she does nothing)?

5. A bond with nominal value of £100 and coupon rate of 8.3 per cent has market value of
£110 What is:
(a) its flat yield?
(b) its yield to maturity in three years?

6. What is the yield to maturity on a zero-coupon bond issued at £50, repayable at par of
£100, in ten years’ time?