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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.
What is its internal rate of return and In capital budgeting, risk can be measured from three perspectives. What are those three measures of a project's risk
Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.89 million. The marketing department predicts that sales related to the project will be $2.59 million per year for the..
Suppose that General Motors issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. Assuming the yield to maturity remains constant, ..
What is the likely impact of the spin-off on Northrop Grumman’s share price immediately following the spin-off of Huntingdon Ingalls assuming no other factors offset it?
A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is INCORRECT?
All else constant, the weighted average cost of capital for a risky, levered firm will decrease if:
Debt financing is more risky for firms than preferred stock financing because
What is the market value of a zero coupon bond with 5 years to maturity? The bond was originally sold with a yield to maturity equal to 11 percent, but the market rate today is 9 percent.
Create a model that will automatically calculate the minimum variance and optimal portfolio as well as be able to draw the efficient frontier for a 3 risky asset portfolio.
Due to the integrated nature of their capital markets, investors from the U.S. and the UK require the same real interest rate, 2.5% for their loans. There is consensus in the capital markets that the inflation rate will probably annual of 1.5% in the..
What are the two principal reasons for holding cash? Can a firm estimate its target cash balance by summing the cash held to satisfy each of the two reasons? What are the four elements of a firm's credit policy? To what extent can firms set their own..
Calculate the IRR for each of the projects. If the discount rate for all three projects is 10 percent, which project or projects would you want to undertake? What is the net present value of each of the projects where the appropriate discount rate is..
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