1-a) Rapid corporate growth in sales and profits can cause financing problems. Elaborate on this statement.
1-b) Discuss the advantage and disadvantage of level production schedules in firms with cyclical sales.
2). Describe in detail the three theories for describing the shape of the term structure of interest rates (the yield curve)?
3) Describe in detail 5 Cs of credit that are sometimes used by bankers and others to determine whether a potential loan will be repaid?
4-a) Commercial paper may show up on corporate balance sheets as either a current asset or a current liability. Explain this statement.
4-b) What are the advantages and disadvantages of commercial paper in comparison with bank borrowing at the prime rate?
5) Describe in detail the three factors that influence the required rate of return by investors?
1). The Harmon Company manufactures skates. The company's income statement for 2008 is as follows:
Given this income statement, compute the following:
a. Degree of operating leverage.
b. Degree of financial leverage.
c. Degree of combined leverage.
d. Break-even point in units.
2) X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows:
a. Which of the two projects should be chosen based on the payback method?
b. Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent.
c. Should a firm normally have more confidence in answer a or answer b
3)
a. Assume the interest rate in the market (yield to maturity) goes down to 8 percent for the 10 percent bonds. Using column 2, indicate what the bond price will be with a 5-year, a 15-year, and a 30-year time period.
b. Assume the interest rate in the market (yield to maturity) goes up to 12 percent for the 10 percent bonds. Using column 3, indicate what the bond price will be with a 5-year, a 10-year, and a 30-year period.
c. Based on the information in part a, if you think interest rates in the market are going down, which bond would you choose to own?
d. Based on information in part b, if you think interest rates in the market are going up, which bond would you choose to own?