Considering making loan

Assignment Help Financial Management
Reference no: EM13937294

Mitchell Bancorp is considering making a loan at 3% interest (c/a) to SohnCo to buy a machine tool worth $300 million. The tool has no salvage value and is depreciated over 3 years by sum-of-years digits. In this state, SohnCo pays 50% tax. The before-tax cash flow is estimated as$200M, $250M, and $300M over the three years. The CEO of Mitchell Bancorp has noticed that SohnCo has been losing money in this business sector by investing wildly in projects and cautions the use of an After-Tax MARR of at least 12%. Assume that Mitchell Bancorp makes this loan. Will SohnCo generate enough ATCF to pay back this loan? Explain your answer.

Reference no: EM13937294

Questions Cloud

What is appropriate cost of capital to evaluate the business : Verano Inc. has two business divisions - a software product line and a waste water clean-up product line. The software business has a cost of equity capital of 11% and the waste water clean-up business has a cost of equity capital of 6%. Verano has 5..
Compute the weighted average cost of capital of the firm : IBM expects to pay a dividend of $4 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. Your estimate of the market risk premium is 6%. The risk-free rate of return is 5% and IBM has a beta of 1.2.What is IB..
What is the firms cost of equity : National Home Rentals has a beta of 1.24, a stock price of $22, and recently paid an annual dividend of $.94 a share. The dividend growth rate is 4.5 percent. The market has a 10.6 percent rate of return and a risk premium of 7.5 percent. What is the..
Percentage change in price of bonds : Both Bond Bill and Bond Ted have 12.2 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 4 years to maturity, whereas Bond Ted has 21 years to maturity. Requirement 1: If interest rates suddenly rise by 2 percent, w..
Considering making loan : Mitchell Bancorp is considering making a loan at 3% interest (c/a) to SohnCo to buy a machine tool worth $300 million. The tool has no salvage value and is depreciated over 3 years by sum-of-years digits. In this state, SohnCo pays 50% tax. The befor..
Potential vendors to purchase network equipment : Assume you are meeting with Cisco and Avaya as potential vendors to purchase network equipment. The initial Cisco network equipment will cost you $10,000 now, $3,000 of maintenance every year for the next 3 years and $1,000 for lease upgrade in year ..
Considering selling product : Valles Global Industries (VGI) is considering selling a product. The contract sells parts for revenue of $65 million a year for 5 years. Their initial investment is $250 million and the equipment has no salvage at 5 years. They estimate production co..
How much should you borrow at the risk-free rate : In order to replicate the payoff of your two call options at the expiration date that you selected, how many shares of stock should you buy today, and how much should you borrow at the risk-free rate? Calculate and explain.
Calculate the beta and standard deviation of Stock I : Consider the following information on Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .21 .050 −.26 Normal .66 .350 .18 Irrational exuberance .13 .210 .46. Calculate the beta..

Reviews

Write a Review

Financial Management Questions & Answers

  Financial statements for its first year in business

In its closing financial statements for its first year in business, ABC Enterprises, had cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of $3,408, accounts payable of $700, short-term notes payable of $740, long-term l..

  Compute net benefit to the firm of using handling procedure

determine the net (pretax) benefit to the firm of using this special handling procedure for a $1 million check received on the following days: Monday and Friday.

  Using the effective interest amortization method

Amortization of Premium or Discount Bonds payable are dated January 1, 2014, and are issued on that date. The face value of the bonds is $125,000, and the face rate of interest is 8%. Using the effective interest amortization method, what amount shou..

  Analyzing firms financial position is essential

Analyzing a firm’s financial position is essential for those in charge to make their plans as you have mentioned. It is not clear how the ratios can work to the advantage of the firm or against the firm. You have also not derived how these ratios can..

  How do you trade to take advantage of the change in skew

Suppose the following data are given. The current price of XYZ stock is $38/share. XYZ does not pay a dividend. The (annualized) six-month interest rate is 4%. There are six-month call and put options on XYZ stock.

  Face value commercial paper

The price of $8000 face value commercial paper is $7930 . if the annualized discount rate 4% when will the paper mature ? if the annualized investment rate % is 4% , when the paper mature

  Investment to grow fourfold

(Solving for n with no annual periods) About how many years would it take for your investment to grow fourfold if it were invested at 6 percent compounded annually? If you invest $1 at 6 percent compounded annually, about how many years would it take..

  Gain or loss does he recognize in liquidation

ABC Partnership distributed land with basis of $12,100 and FMV of $20,000 to Partner A in liquidation of his partnership interest. Partner A's basis in his partnership interest before the distribution was $13,700 and includes $5,000, his share of par..

  The buyer of a call option expects prices

The buyer of a call option expects prices to ______________, while the seller expects prices to _____________. On the other hand, the buyer of a put option expects prices to _______________, while the seller expects prices to _____________.

  The firms cost of equity

What is the firm's cost of equity? If the following is true:

  Calculate the profit the firm will make on this asset

Consider a firm with a contract to sell an asset for $150,000 five years from now. The asset costs $86,000 to produce today. Given a relevant discount rate on this asset of 12 percent per year, calculate the profit the firm will make on this asset.

  In this module you will explore how businesses react to

discussionmdashfactors and trends that influence strategy developmentin this module you will explore how businesses

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd