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A Company and B Company need to raise funds to pay for capital improvements at their manufacturing plants. A Company is a well-established firm with an excellent credit rating in the debt market; it can borrow funds either at 11 percent fixed rate or at LIBOR + 1 percent floating rate. B Company is a fledgling start-up firm without a strong credit history. It can borrow funds either at 10 percent fixed rate or LIBOR + 3 percent floating rate.
a. If the amount each firm wants to borrow is 100,000,000 payable back in 3 years, can you describe how would you attempt to price the swap for the floating-rate payer firm?
b. What other information you would need for pricing the swap?
This statement from the 10-K filed by Bear Stearns for the Fiscal year 2007 indicates that management was aware that the firm was exposed to a run by other banks. “An inability to raise money in the long-term or short-term debt markets, or to engage ..
Can ethics as it relate to technology be taught at CanGo? Why or why not? How does the globalism trend affect CanGo cost/benefit analysis?
Warner Cable Company needs to replace 5 vehicles in its 50 vehicle fleet. Warner is considering two different types of vehicles: a higher cost, higher gas mileage vehicle (Vehicle Type HC) or a lower cost, lower mileage vehicle (Vehicle Type LC). Wha..
Global Inc. has its own target capital structure that consists of debt and equity. The firm anticipates that its capital budget for the next year will be $1,500,000. If it reports net income of $1,200,000 and wants to maintain a 20% payout ratio, wha..
In defining demand and supply, why do you think economists focus on price while holding constant other factors that might have an impact on the behavior of buyers and sellers?
The last dividend per share on Stock K was $1.25. The dividend next year (Year 1) is expected to be 4% higher. Then the dividend is expected to continue to grow at the rate of 4% per year forever. If the stock is priced today at $16.25 per share, wha..
A stock is currently priced at $37.40. Its dividend is expected to grow at a rate of 6.80% per year indefinitely. The stock's required return is 9.70%. The stock's predicted price 5 years from now, P5, should be $________.
A perpetuity will make payments of $50,000 every third year, with the first payment occurring three years from now. The effective annual interest rate is 8%. Find the present value of this perpetuity.
Magnus Credit Corp. wants to earn an effective annual return on its consumer loans of 17.75 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 18 percent, –3 percent, 16 percent, 11 percent, and 10 percent. What was the arithmetic average return on Crash-n-Burn’s stock over this five-year period..
You have developed a new a new recreational tennis racket with tennis great Jimmy Connors. You have paid Jimmy Connors for his involvement in the project $250,000. The racket is state of the art and guaranteed to correct any backhand. What will the a..
What are the stages of an economic cycle? Explain their significance for you personal finance. Describe employee benefit and tax planning. How do they fit into the financial planning environment?
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