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If the money is borrowed, the bank loan will be at a rate of 14 percent, amortized in 3 equal installments at the end of each year.
Assuming that the after-tax cost of debt should be used to discount all anticipated cash flows.
What are the two principal reasons for holding cash? Can a firm estimate its target cash balance by summing the cash held to satisfy each of the two reasons?
To what extent can firms set their own credit policies as opposed to having to accept policies that are dictated by “the competition”?
Is it true that most firms are able to obtain some free trade credit and that additional trade credit is often available, but at a cost? Explain.
Williams & Sons last year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system.
A chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day.
Forty percent of the customers pay on the 10th day and take discounts; the other 60 percent pay, on average, 40 days after their purchases.
Calculate the nominal annual cost of nonfree trade credit. Assume payment is made either on the due date or on the discount date.
Assuming that the company’s projects are divisible, what will be the company’s capital budget for the next year?
Securities and Exchange Commission (SEC); registration statement; shelf registration; margin requirement; insiders.
Is it true that the “flatter,” or more nearly horizontal, the demand curve for a particular firm’s stock.
The SEC attempts to protect investors who are purchasing newly issued securities by making sure that the information put out by a company.
How do you think each of the following items would affect a company’s ability to attract new capital and the flotation costs involved in doing so?
Before entering a formal agreement, investment banks carefully investigate the companies whose securities they underwrite.
The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock.
What is the total dollar call premium required to call the old issue? Is it tax deductible? What is the net after-tax cost of the call?
Mullet Technologies is considering whether or not to refund a $75 million, 12 percent coupon, 30-year bond issue that was sold 5 years ago.
A call premium of 12 percent would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million.
If Buena Terra follows the residual model and makes all distributions as dividends, how much retained earnings will it need to fund its capital budget?
In 2006 the Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. 2006 was a normal year, and for the past 10 years.
The Wei Corporation expects next year’s net income to be $15 million. The firm’s debt ratio is currently 40 percent.
Petersen Company has a capital budget of $1.2 million. The company wants to maintain a target capital structure which is 60 percent.
Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system.
Assuming that the stock split will have no effect on the total market value of its equity, what will be the company’s stock price following the stock split?