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A bank offers your firm a revolving credit arrangement for up to $68 million at an interest rate of 1.41 percent per quarter. The bank also requires you to maintain a compensating balance of 6 percent against the unused portion of the credit line, to be deposited in a noninterest-bearing account. Assume you have a short-term investment account at the bank that pays .82 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans.
What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year?
What is your effective annual interest rate on the lending arrangement if you borrow $47 million immediately and repay it in one year?
What is your effective annual interest rate if you borrow $68 million immediately and repay it in one year?
Bill makes annual deposits of $1900 to an an IRA earning 8% compounded annually for 20 years. At the end of the 20 years Bill retires. a) What was the value of his IRA at the end of 20 years
Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million.
What is leverage, how do you create or decrease leverage and why is leverage used?
Consider a three-year project with the following information: initial fixed asset investment = $870,000; straight-line depreciation to zero over the five-year life; zero salvage value; price = $34.05; variable costs = $22.55;
A project has annual cash flows of $3,500 for the next 10 years and then $10,500 each year for the following 10 years. The IRR of this 20-year project is 12.94%.
Merton Enterprises has bonds on the market making annual payments, with 14 years to maturity, and selling for $972. At this price, the bonds yield 8.4 percent.
An Asset will provide cash inflows of $8,000 in 4 years and $20,000 in 10 years. The assert is currently priced at 5% annual effective. a. What is the modified duration of the asset
The Fitness Studio, Inc., with the help of its investment bank, recently issued $43.265 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 3 percent of the gross proceeds.
Metropolis Health Syatem has received a wellness grant from the charitable arm of an area electronics company. The grant will run for twenty four months, beginning at the first of the next fiscal year
Bond X is a premium bond making annual payments. The bond has a coupon rate of 9.2 percent, a YTM of 7.2 percent, and has 17 years to maturity. Bond Y is a discount bond making annual payments.
Your finance text book sold 47,500 copies in its first year. The publishing company expects the sales to grow at a rate of 23.0 percent for the next three years, and by 6.0 percent in the fourth year.
To fund the purchase, the private equity firm assumes all existing $100 debt at the current 4% interest rate, borrows $100 in new debt with a 12% interest rate, and contributes $20 in equity.
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