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The Kittanning Company has a $2 million line of credit with First Interstate Bank under which it can borrow funds at 1.5 percentage points above the prime rate (currently 9 percent). The company plans to borrow $1.5 million and is required by First Interstate to maintain a 10 percent compensating balance. Determine the annual financing cost of the loan under each of the following conditions:
a. Kittanning currently maintains $100,000 in its account at the bank that can be used to meet the compensating balance requirement.
b. The company currently has no funds in its account at the bank that can be used to meet the compensating balance requirement.
Calculating Earnings Per Share, Price-Earnings Ratio, and Book Value. As a stockholder in Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $9 million, liabilities of $5 million, after-tax e..
Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 40,000 shares of stock. The debt and equity option would consist of 25,000 shares of stock plus $280,000 of debt wi..
Fleury Co. has a 38 percent tax rate. Its total interest payment for the year just ended was $24 million. Required: What is the interest tax shield?
Suppose an investor purchases 100 shares of a stock selling at $50 per share, 100 put options on the stock with exercise price $40 and writes 100 calls on the stock with exercise price $60. Suppose no premium is paid when purchasing a put or writing ..
Reagan Corp. has reported a net income of $836,200 for the year. The company's share price is $13.03, and the company has 307,810 shares outstanding. Compute the firm's price-earnings ratio.
A department manager is proposing a new project to you to take to your business’s leadership team. He is proposing a $210,000 new piece of equipment that will generate $85,000 in revenue for 4 years. What is the NPV of this project? What would you re..
A 9-year bond of a firm in severe financial distress has a coupon rate of 10% and sells for $940. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the ..
A project has an initial cost of $35,000 and a four-year life. The company uses straight-line depreciation to a book value of zero over the life of the project. The projected net income from the project is $1,100, $1,300, $1,600, and $1,800 a year fo..
Bond X is no callable and has 20 years to maturity, a 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 11%; and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5, years the yie..
Proper English Tea, Inc. expects to introduce a new line of teapots, but first management wants to determine its break-even point. Proper English Tea’s expected price per unit is $37.08. The company expects to sell 4,018 units. Variable costs per uni..
In concept, the RAROC measure indicates a loan is acceptable if the RAROC is greater than the
Sears has a quick ratio of 0.15729 in Jan 2012 and current ratio of 1.11 in Feb 2014, and quick ratio of 0.19438 and current ratio of 1.09. Has Sears Holdings liquidity improved or been degraded over the time period Jan 2012 & Feb 2014. Use ratios.
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