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Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10 year maturity. The investors require a 9 percent rate of return.
a. Compute the market value of the bonds.b. What will the net price be if flotation costs are 10.5 percent of the market price?c. How many bonds will the firm have to issue to receive the needed funds?d. What is the firm's after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent?
Citibank US plans to lend $100 million US to a Canadian customer. The borrower will repay the loan in Canadian dollars. Describe in some detail how the risks of this loan differ from.
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What is the internal rate of return for the two investments? Which investment(s) should the firm make? Is this the same answer you obtained in part A
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Calculate the firm’s total-debt-to-assets ratio. Assume that the firm’s prior year-end total liabilties balance was $2.4 million and the firm's prior year-end total assets balance was $5 million.
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