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Merkel, Inc are considering Issuing $10,000,000 of 10-year bonds with a coupon rate of 4%, interest payablesemiannually. Although the current market rate is 4%, based on current economic forecasts, Zeller and Merkel reconize that market rates might increase to 6% by the time they issue the bonds. Althogh they do not like the option of added debt, they feel it is a reasonable alternative and should be considered. Howerever, they are not clear on the implication that this bond issue would have on the company and its financial statements, including the impact of the possibility that interest rates might increase by the time the bonds could be actually issued. Zeller and Merkel are also considering that they can outright borrow the $10,000,000 from a bank, with an interest rate of 4% or 6%, but again are unclear as to the impact of the financial statements. In addition to describing the impact, they would also like a comparison of the advantages and disadvantages of raising the monies via a bond issue versus a loan.
Assume that the cost of carrying silver includes storage costs. On March 17, 2015 the May 2015 futures contract settled at $ 15.578 per ounce (assume it is a 2-month contract), spot traded at $ 15.562 per ounce. Storage costs per ounce are about 0.2%..
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $80.00 a share. The before-tax cost of debt is 7.50%, an..
Mc Donalds corp. preferred stock pays an annual dividend of $5 per share. Calculate the value of one share to an investor who requires a rate of return of : Calculate the yield of the Mc Donalds corp preferred stock of problem 13 if its market price ..
Is there any evidence of serial correlations in the log returns? - Identify an ARCH model for the data and fit the identified model. Write down the fitted model.
How does the equity method distort earnings? Income is recognized even though cash may never be received. Equity earnings are recorded even if the investor cannot exercise influence over the investee’s policies. Equity earnings are only recorded on a..
United Systems is one of the country’s largest distributors of servers and video-conferencing technology. Recently, the company successfully expanded into three new markets. Comparing the company’s actual sales volume in the new markets to the compan..
Which MACRS (Modified Accelerated Cost Recovery System) depreciation method is used to provide a lesser extend for tax deduction purpose?
Digital Organics (DO) has the opportunity to invest $0.93 million now (t = 0) and expects after-tax returns of $530,000 in t = 1 and $630,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 14% with all-equity f..
Find the assessed value of a home with a market value of $175,000 if the assessed valuation is 35% of the market price. Find the property tax on a home with an assessed value of $85,000 if the property tax rate is $11.25 per $1,000 of the assessed va..
A $1,000 par value bond with five years left to maturity has 6% coupon rate. Couponpayment is made annually and the bond is priced to have a 5% yield to maturity (YTM). If the YTM surprisingly increases by 0.5%, by how much will the bond’s price chan..
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: What is the NPV for the project if the required return is 10 percent?
NET working capital should be considered in project cash flows because
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