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Reynolds Construction needs a piece of equipment that costs $200. Reynolds can either lease the equipment or borrow $200 from a local bank and buy the equipment. If the equipment is leased, the lease would not have to be capitalized. Reynolds’ s balance sheet prior to the acquisition of the equipment is as follows: Current assets 300 Debt 400 Fixed assets 500 Equity 400 Total assets 800 Total claims 800 a. What is Reynolds’s current debt ratio? b. What would the company’s debt ratio be if it purchased the equipment? c. What would the company’s debt ratio be if the equipment were leased? d. Would the company’s financial risk be different under the leasing and purchasing alternatives?
An investment account was initiated with an investment of $1000. The fund had grown to $1200 after one year, and an additional $1000 was invested. The fund balance at the end of two years was $2200. What annual effective interest rate was earned in t..
Today, you borrowed $7,332 on your credit card to purchase a bedroom set. The interest rate is 13.9%, compounded monthly. How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly payments o..
The Black Bird Company plans an expansion. The expansion is to be financed by selling $181 million in new debt and $123 million in new common stock. The before-tax required rate of return on debt is 8.30% percent and the required rate of return on eq..
Assume that you work for a manufacturing company that manufactures blue jeans, and you have been tasked with explaining the company’s cost flows. How do the manufacturing costs flow through your company’s accounting system (capitalization to expirati..
Hughes Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 15 percent and the company just paid a $3.5..
Why should a firm invest its idle cash? How to invest the idle cash and what's credit management? What's the optimal credit policy?
Procrastinators Anonymous (PA) is hosting their annual convention this coming year in Dallas, TX. Although this is not typical of this organization, they wish to plan ahead to determine what the cost of the keynote banquet ticket should be. The ticke..
Elena has found a 4 year investment that pays 10% per annum, compounded annually, which allows him to add or withdraw cash at any year end without penalty. She puts $10,000 in today, withdraws $2,000 at the end of Y1 to pay for a vacation, adds $1,00..
Sensitivity analysis helps determine the
Based strictly on the calculations, which proposals should be accepted or rejected. Use the appropriate divisional discount rate. The net present value provides the answer directly while the internal rate of return must be compared to the discount ra..
If you were the CFO of a company that had to decide on hundreds of potential projects every year, would you want to use sensitivity analysis and scenario analysis or would the amount of arithmetic required take too much time and thus not be cost-effe..
The class began with a discussion of at-will employment being the foundation principle of the employment relationship. The rest of the course complicated this principle by providing numerous exceptions. Based on your reading throughout the course, pr..
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