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Carter Enterprises can issue floating-rate debt at LIBOR or fixed-rate debt at 9.9 percent. Brence Manufacturing can issue floating-rate debt at LIBOR + 1.5 percent or fixed-rate debt at 10.5 percent. Suppose Carter issues floating-rate debt and Brence issues fixed-rate debt. They are considering a swap in which Carter will make a fixed-rate payment of 8.90 percent to Brence, and Brence will make a payment of LIBOR + 1 to Carter.
a. What are the net payments of Carter and Brence if they engage in the swap?
b. Will Carter be better off to issue fixed-rate debt or to issue floating-rate debt and engage in the swap?
c. Will Brence be better off to issue floating-rate debt or to issue fixed-rate debt and engage in the swap?
Both the inventory conversion period and payables deferral period use the average daily COGS in their denominators, whereas the average collection period uses average daily sales in its denominator. Why do these measures use different inputs?
Darby Minerals wants to hire an investment banker to sell 2 million shares of stock to the public. Darby is considering using either a firm commitment or a best efforts offering. Why are mutual funds popular with individual investors?
Consider a world where the M&M Corporate Taxes Capital Structure theory is true, then answer the following question. An all-equity firm currently has a market value of $622.09. The firm decides to issue debt in order to repurchases $126.48 in equity...
Find the future value of the following ordinary annuities: using the TVM CALCULATOR find a. FV of $400 each six month for five years at a simple rate of 12%, compounded semiannually. b. FV OF$200 each three months for five years at a simple rate of 1..
Suppose that you have $82,500 to invest and would like to purchase 1500 shares of ABC Corp.'s shares which are currently trading for $100.00 per share. Law requires that all brokers have an Initial Margin of 50% but your broker demands a 55% Initial ..
You buy a car today for $29,000. If you finance it with a 6% APR, 4 year loan, what is the difference in your payments if you agree to pay at the beginning of each month rather than at the end? Assume monthly compounding.
BlockOut Co. has 72,814 bonds outstanding that are selling at par value. The bonds yield 8.9 percent. The company also has 4.5 million shares of common stock outstanding. The stock has a beta of 1.11 and sells for $43.5 a share. The U.S. Treasury bil..
What is the net profit or loss for one contract? What would the spot rate need to be at the time the option is exercised for the speculator to break even? What is the net profit per unit to the seller of this option if exercised now?
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $730 per set and have a variable cost of $330 per set. The company has spent $143,000 for a marketing study that determined the company will sell 55,000 sets per year ..
Aloha Inc. has 8 percent coupon bonds on the market that have 13 years left to maturity. If the YTM on these bonds is 10.42 percent, what is the current bond price?
When the net present value is negative, the internal rate of return is __________ the cost of capital.
After a banner year of rising profits and positive stock returns, the managers of Raptor Pharmaceuticals Corporation (RPC) have decided to launch a seasoned equity offering to raise new equity capital. Calculate the return earned by RPC's existing st..
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