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A bank offers a client a choice between two financing options for a one-year period: Option1: a term-loan for the full year of $500,000 to be repaid at the end of the year with interest fixed at 12% per year. Option 2: An overdraft, with a quoted rate of 14% per year, with interest charged quarterly on the average balance. The firm expects to need finance, on average, $400,000 in the first quarter, $500,000 in quarter 2, $500,000 in quarter 3 and only $200,000 in the final quarter due to the seasonal nature of its business. Unused funds can be invested at 2% per quarter (compounded quarterly). The bank will however not charge interest on accumulated quarterly interest charges (simple interest only). Which option would you recommend to the client? Support your answer with detailed computations.
Hamlin Pharmaceuticals has $10 million in debt and $70 million in equity. Its tax rate is 35%, cost of debt 6%, and beta 1.5. The riskless rate is 3% and the expected return on the market 13%. Hamlin would like to start a newspaper using its existing..
Which of the following is a source of cash? Information that can make a difference to the decision at hand is considered to be. Which of the following increases cash. Which of the following ratios measures operating performance?
Which one of the following best defines the term collection policy?
You own 500 shares of Stock A at a price of $70 per share, 485 shares of Stock B at $90 per share, and 850 shares of Stock C at $43 per share. The betas for the stocks are .6, 1.4, and .8, respectively. What is the beta of your portfolio?
A company just paid a dividend of 2 NOK per share. The share price before the dividend payment was 105 and the price after the payment is 102.5. The capital gain tax rate is 30%. Assuming there are no-arbitrage opportunities, what is the tax rate on ..
You purchased one of Big Corp.’s 8%, 10-year convertible bonds at its $1,000 par value a year ago when the company’s common stock was selling for $20. Similar bonds without a conversion feature returned 12% at the time. The bond is convertible into s..
The Federal government manages millions of acres of forest land across the country, but there are increasing pressures on the agencies to permit varying levels of commercial access to the timber, other resources, and the water flows. Should the go..
The Saunders Investment Bank has the following financing outstanding. Debt: 120,000 bonds with a coupon rate of 8 percent and a current price quote of 110.0; the bonds have 20 years to maturity. Preferred stock: 210,000 shares of 6 percent preferred ..
Concept Caching of Subsaharan Africa
High price multiples:
The interest factor (IF) for the future value of an ordinary annuity is 4.641 at 10% for four years. If we wish to accumulate $8,000 by the end of four years, how much should the annual payments be?
The Centennial Chemical Corp. announced that, for the period ending March 31, 2014, it had earned income after taxes worth $5,330,275 on revenues of $13,144,680. The company’s costs (excluding depreciation and amortization) amounted to 61 percent of ..
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