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You are given the task of striking a loan agreement with a bank. You need $20,000,000 to launch a new product which will begin to provide very little profit and working capital in year 1. It will provide $13,000,000 in year 2 and $25,000,000 in year 3 working capital and profit. The bank has offered the money 4% and the inflation rate is projected 2% a year for the 3 year loan period. There will be a call principle at the bank's discretion. There will be a 20% inventory secured lien toward the loan. All arbitrations will be held in the Venezuelan courts. The bank has the right to adjust the interest rate at their discretion and says that you can not negotiate with any other banks. Repayments are to be made daily and the bank reserves the right to be included in all corporate decisions. How would you secure a loan and agreement with this bank? How would you handle the shortfalls of working capital based on the adjustments you will make for the interest rate and inflation?
You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of 240 at year-end. XYZ currently sells for 240. How much would it cost to purchase if the desired put option were traded? What would..
Kessel Inc. offers a zero-coupon bond that has 15 years to maturity and the yield-to-maturity of similar bonds is 4%. What is the market price of Kessel Inc.'s bond? A Chicago, Illinois municipal bond has a maturity date in 20 years, offers a 6.5% co..
Synergy between two companies: Compound rates, not discount rates, are used in an attempt to?
The QuickFix Company just paid a dividend of $3.00 and analysts expect the dividend to grow at its compound average growth rate of 10.72% forever. You plan to purchase the stock then hold it for 10 years. Your expected rate of return is 12%, and the ..
Constant-Growth Model. Gentleman Gym just paid its annual dividend of $3 per share, and it is widely expected that the dividend will increase by 5% per year indefinitely. what price should the stock sell at? The discount rate is 15%. How would your a..
Mojito Mint Company has a debt–equity ratio of .20. The required return on the company’s unlevered equity is 13 percent, and the pretax cost of the firm’s debt is 8.7 percent. Sales revenue for the company is expected to remain stable indefinitely at..
Overhead is applied on the basis of machine hours. It takes 3 machine hours to produce a large doll house and 2 machine hours to produce a small doll house. EDHC produces 2,000 large doll houses and 10,000 small doll houses in a year. Total manufactu..
Why may the IRR criterion lead to an incorrect decision when applied to mutually exclusive projects?
Define the minimum variance hedge ratio and the measure of hedging effectiveness? What do these two values tell us?
A 6-year bond pays interest of $80 annually and sells for $950. What are its coupon rate, current yield, and yield to maturity?
Ecology Labs, Inc., will pay a dividend of $3.90 per share in the next 12 months (D1). The required rate of return (Ke) is 22 percent and the constant growth rate is 10 percent. (Each question is independent of the others.) a. Compute the price of Ec..
In a merger & acquisition transaction, target firm’s shareholders mostly like to get cash for their shares. Explain why. Give two reasons why in some situations they would like to get paid with acquirer shares instead.
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