How much should the lender be repaid

Assignment Help Finance Basics
Reference no: EM13299874

Fourteen years ago, the U.S. Aluminum Corporation borrowed $9.9 million. Since then, cumulative inflation has been 98 percent (a compound rate of approximately 5 percent per year).

a. When the firm repays the original $9.9 million loan this year, what will be the effective purchasing power of the $9.9 million? (Hint: Divide the loan amount by one plus cumulative inflation).

b. To maintain the original $9.9 million purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation).

c. If the lender knows he will receive only $9.9 million in payment after 14 years, how might he be compensated for the loss in purchasing power? A decriptive answer is acceptable.

 

Reference no: EM13299874

Questions Cloud

Find corresponding racing speed and drag on the car : A one tenth scale model of a soap box derby car is tested in a wind tunnel. The air speed in the wind tunnel is 70m/s, the air drag on the model car is 240 N, and the air temperature and pressure are identical to those expected
What does this problem tell up about the interset rate risk : The Faulk Corp. has a 6 percent coupon bond outstanding. The Gonal Company has a 14 percent bond outstanding. Both bonds have 8 years to maturity, make semiannual payments, and have a YTM of 10%.
How much torque is required to stop the wheel : A ten pound car wheel has a moment of inertia of 0.3 kg m2. How much torque is required to stop the wheel
Find the intensity level generated by one harmonica : The intensity level of 26.82 harmonicas in a harmonica band is 87.59 dB. Compute the intensity level generated by one harmonica
How much should the lender be repaid : If the lender knows he will receive only $9.9 million in payment after 14 years, how might he be compensated for the loss in purchasing power? A decriptive answer is acceptable.
Find the relationship between light intensity and position : How does the intensity change as position increases? What is the position value corresponding to the highest light intensity, What is the relationship between light intensity and position
How will the stocks be affected : The change will allow the coorporation to report a higher inincome and higher assets although the physical inventory has not changed How will the stocks be affected.
Determine the force acting on the object at given time : An object of mass 126.309172 g executes SHM with an amplitude of 12.426183 cm, Find the force acting on the object at time 1.487176 s
How fast does the hanging mass rise : The rope wrapped around the outer diameter of the disk is pulled at a constant speed of 1.06 m/s. If the outer radius is 1.39 cm, how fast does the hanging mass rise

Reviews

Write a Review

Finance Basics Questions & Answers

  Determine bonds coupon rate and yield to maturity

A six year Circular File bond pays interest of $80 yearly and sells for $950. Determine its coupon rate, current yield, and yield to maturity?

  Compute the flotation costs

Based on the information , compute the flotation costs that Sprite would incur it is raises the needed funds by issuing equity only.

  Calculating going rate of interest on bonds

Suppose a car company sold an issue of bonds with a 10-year maturity, a $1,000 par value-Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell?

  Which strategy works best if a bidding war erupts

If you were Smith's financial advisor, which strategy would you advise he establish? Or would you argue that he not speculate on this takeover?

  What is the target stock price in one year

What is the target stock price in one year? Assuming the company pays no dividends, what is the implied return on the company's stock over the next year?

  Risk for corporate investment and financing activities

Discuss and explain some examples of factors that can contribute to corporate risk? Determine how can organizations mitigate these risks?

  Make a cash budget

The Sharpe company's projected sales for the first eight months of 2004 Sharpe purchases its raw materials 2 months in advance of its sales equal to 60 percent of their final selling price

  What is the weighted average cost of capital at the optimal

what is the firm's optimal capital structure, and what is the weighted average cost of capital at the optimal structure?

  What was days sales outstanding or average collection

Red Hot Chili's had annual credit sales of $800,000 over the past year. During that time, average receivables were $200,000. What was the days' sales outstanding or average collection period (ACP)?

  An external adviser of a chinese chemical firm

Assume that you are an external adviser of a Chinese chemical firm which produces in Korea for a market in France. The firm uses a range of inputs, crude oil and energy being amongst them.

  How is the break-even point calculated

Willington rings produces class rings that sell for $75.00 ea and cost $35.00 to produce. they havea fixed cost of $50,000. How is the break-even point calculated?

  Receipt of dividends affect the investment account

Bista Company announces and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd