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You recently approached your bank about establishing a credit line facility. The terms offered by your bank include a nominal rate of prime + 1.5% (prime is currently 5%) on the amount borrowed, a commitment fee of 25 basis points on the unused portion of the credit line, and a compensating balance of 10% on the amount borrowed. You decide to establish the line for $75 million. Over the course of a year, you anticipate the average amount borrowed to be $55 million. Your firm keeps no balances at the bank paying fees for all cash management services. a. Estimate the cost of credit line. b. Assume that the firm did have cash balances to cover the required compensating balances resulting from the credit line borrowings. Estimate the effective cost of the credit line.
An investment of $83 generates after-tax cash flows of $46.00 in Year 1, $70.00 in Year 2, and $131.00 in Year 3. The required rate of return is 20 percent. The net present value is
Stone West mining Corp. has 12,000 shares outstanding with a market price per share of $60. The net after-tax earnings of the firm are $45,000. Stone West E&R department management forecasts an abnormal growth over the next few years; hence the firm ..
Suppose you own 40,000 shares of common stock in a firm with 2 million total shares outstanding. The firm announces a plan to sell an additional 0.6 million shares through a rights offering. What is the market value of the stock after the rights offe..
After several years of existence, ABC Company decided to create a formal product development department. Discuss how this department should look first for product problems/ideas. What types of information might be obtained from this source? Review le..
If both gambles offer you the same expected utility (i.e., the same expected satisfaction), what is the dollar amount of your risk premium?
Your firm is contemplating the purchase of a new 540,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five year life. It will be worth 48,000 at the end of that time. Suppose your required return on..
select a company for analysis. this company should be quoted on one of the principal international exchanges. it can be
The real risk free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year treasury security yields 6.2%. What is the maturity risk premium for the 2-year security?
Security F has an expected return of 10.9% and a standard deviation of 24% per year. Security G has an expected return of 18.1% and a standard deviation of 63% per year.
The tax treatment regarding the sale of existing assets that are sold for less than the book value results in an ordinary tax benefit. a capital loss tax benefit. recaptured depreciation taxed as ordinary income.
What are the regulatory requirements that firms must follow when engaged in merger or acquisition activity; like the Williams Act (1968) which protects stockholders
What is the market price of a $1000, 8 percent bond if comparable market interest rates drop to 6 percent and the bond matures in 15 years?
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