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In mid-December, a bank Treasurer projects that loan demand will require a S10 million borrowing on March 15. The contractual loan rate is 125 basis points over LIBOR. As of December 15. the 3-month I.IBOR rate was 8.375 percent and the March Eurodollar futures rate was 11.85 percent (price 88.15). The Treasurer is conceded that interest rates may rise between December and March. The projection for the future is that on March 15. the 3-month LIBOR rate would be 11.125 percent, and the Eurodollar futures rate would be 14.75 percent (price 85.25).
State what kind of hedge would he take and why.
Compute the firm's actual interest cost in dollars.
Compute gain or loss m the futures market a fire describing the transactions.
Calculate effective annualized interest cost.
An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; Calculate the NPV and IRR wi..
Which of the following are negative covenants that might be found in an indenture?
Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows:
The interest rate in the United States is 4% and the euro is trading at 1 euro per dollar. The euro is expected to depreciate to 1.1 euro per dollar. Calculate the interest rate in Germany.
Using examples, explain the difference between systematic risk and non systematic risk. Explain why the distinction is important for both investors and issuers of stock.
Last year Rennie Industries had sales of $305,000, assets of $175,000, a profit margin of 5.3%, and an equity multiplier of 1.2. The CFO believes that the company could reduce its assets by $51,000 without affecting either sales or costs. Had it redu..
Tauscher Textiles Corporation has an inventory conversion period of 45 days, a receivables collection period of 47 days, and a payables deferral period of 35 days. If Tauscher's sales are $3,309,028 and all sales are on credit, what is the firm's inv..
What is the current price of a bond if it is priced to yield 2 percent, has a $1,000 face value, has 10 years to maturity, pays semiannual coupon payments, and has a coupon rate of 7 percent?
A smart engineer started saving for her retirement 10 years ago. She saved $12,000 each year through the present time. If she has invested in a stock fund that averaged a 15% rate of return over that period, and she expects to make the same annual in..
George and Barbara will be retiring in four years and would like to buy a lake house. They estimate that they will need $150,000 at the end of four years to buy this house. They want to make four equal annual payments into an account at the end of ea..
Market value will be 60 millions. During the year company will raise and invest 20 million in new projects. The firm presents value capital structure described below. No short -term debt. Debt: 30,000,000 Common equity: 30,000,000 and Total equity: 6..
TAFKAP Industries has 5 million shares of stock outstanding selling at $14 per share, and an issue of $30 million in 7.5 percent annual coupon bonds with a maturity of 15 years, selling at 103 percent of par. Assume TAFKAP’s weighted average tax rate..
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