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You’ve worked out a line of credit arrangement that allows you to borrow up to $45 million at any time. The interest rate is .49 percent per month. In addition, 6 percent of the amount that you borrow must be deposited in a non-interest-bearing account. Assume that your bank uses compound interest on its line of credit loans.
a. What is the effective annual interest rate on this lending arrangement?
b. Suppose you need $19 million today and you repay it in 6 months. How much interest will you pay?
A firm has a return on equity of 12.4 percent according to the dividend growth model and a return of 18.7 percent according to the capital asset pricing model. The market rate of return is 13.5 percent. What rate should the firm use as the cost of eq..
London International Bank has issued £500 million loan to different borrowers. The average return on these loans is LIBOR + 3%. These funds are generated through deposits at fixed rate of 12%. London Merchant Bank has similar type of balance sheet; D..
Explain how the table below works, i.e., what are the inputs, what are the outputs, and how are the inputs transformed into the outputs and explain how the investment in working capital changes (compared to the amount in Q2a) and why.
Ninja Co. issued 12-year bonds a year ago at a coupon rate of 8.4 percent. The bonds make semiannual payments. If the YTM on these bonds is 6.7 percent, what is the current bond price?
Ace Hardware paid an annual dividend of $1.25 per share last month. Today, the company announced that future dividends will be increasing by 2.5% annually. If you require a 11% annual rate of return, how much are you willing to pay to purchase one sh..
You are considering two mutually exclusive projects. Project A has cash flows of -$72,000, $21,400, $22,900, and $56,300 for years 0 to 3, respectively. Project B has cash flows of -$81,000, $20,100, $22,200, and $74,800 for years 0 to 3, respectivel..
Nonconstant Growth Valuation A company currently pays a dividend of $1.5 per share (D0 = $1.5). It is estimated that the company's dividend will grow at a rate of 24% per year for the next 2 years, then at a constant rate of 5% thereafter. The compan..
Which one of the following statements is typically correct for a going-concern firm?
Use the DerivaGem software to calculate the value of the stock or futures contracts that the administrators of the portfolio insurance schemes will attempt to sell if the market falls by 23% in a single day.
Gardial GreenLights, a manufacturer of energy efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $20 million investment in new machinery.
Components of Bond Returns. Bond P is a premium bond with a coupon rate of 8.5%. Bond D is a discount bond with a coupon rate of 5.5 %. Both bonds make annual payments, have a YTM of 7%, a par value of $1,000, and have 5 years to maturity. What is th..
A municipal bond you are considering as an investment currently pays a 6.81 percent annual rate of return. Calculate the tax equivalent rate of return if your marginal tax rate is 28 percent. Calculate the tax equivalent rate of return if your margin..
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