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You recently approached your bank about a credit line. The terms offered to you include a rate of prime plus 1 percent on the amount borrowed. Prime is currently 3.25%. There is also a commitment fee of 20 basis points on the unused portion of the credit line and a compensating balance of 15% on the amount borrowed.
You decide to establish the line of credit for $40 million. Currently, your company does not hold balances in their accounts at the bank and pays fees for all cash management services.
A. Estimate the yearly cost of the credit line if the average monthly amount used is $30 million.
B. If your company chose to start keeping the compensating balance at the bank, estimate the effective cost of the credit line.
Perpetuity Y also has end of year payments but they beginning at $45 and increase by $45 each year. Find the rate of interest which will make the difference in present values between these two perpetuities a maximum.
according to MM proposition I with taxes, what would be the increase in the value of the company after the loan?
The firm also has a total of $10,000,000 (par value) is debt outstanding. The debt is in the form of bonds with 10 years left to maturity. They pay semi-annual coupons at a coupon rate of 12% Currently, the bonds sell at %110 of par value.
What is the effective annual return (EAR) for an investment that pays 10 percent compounded annually?
Suppose you own stock in the Gentry corporation, and you read in the financial press that a recent bond offering has raised the firm's debt/equity ratio from 35% to 55%.
Find the Correct statement. Suppose that all projects being considered have normal cash flows and are equally risky.
Why have two-thirds of Americans failed to prepare a will? Explain.
The new CFO wants to employ enough debt to raise the debt/assets ratio to 40%, using the proceeds from borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio?
What is the incremental cash flow related to working capital when the store is opened?
The appropriate real discount rate for Phillips is 11%. All net cash flows are received at year-end. What is the present value of the net cash flows from A+ operations?
A firm has a capital structure with $30 million in equity and $90 million of debt. The cost of equity capital is 10% and the pretax cost of debt is 6%. If the marginal tax rate of the firm id 40%, compute the weighted average cost of capital of th..
The Six-month U.S. dollar LIBOR is currently 4.375%; your firm issued floating-rate notes indexed to six-month U.S. dollar LIBOR plus 50 basis points. What is the amount of the next semi-annual coupon payment per U.S. $1,000 of face value?
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