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The mix of debt and equity financing used by an organization is called its capital structure. Many managers struggle with finding a balance between these two options. It is a critical decision, as it impacts the organization's assets, liabilities, and bottom line.
You are the business office manager for Hope and Healing General Hospital. The radiology department is considering purchasing a new, high-tech diagnostic machine. It has a high resolution and has resulted in more accurate diagnoses. The machine costs $200,000 dollars. The three options for financing are obtaining a bank loan with interest (debt) for the entire purchase price, buying it outright with no debt, or using venture capitalists (equity). You have been asked to prepare a memorandum for the hospital's executive director with your recommendation.
In your memorandum, start out by reminding the executive director what debt and equity financing are. You will then comment on the pros and cons of each method. Also, note which option you feel is the safest and which is the least safe option. Be sure to state why.
Why might Buffett have chosen to invest in the preferred stock issued by these firms rather than their common stock?
Why a dollar today is worth more a dollar tomorrow? How does it relate to the principle of the value of money in time? Give an example.
The Nebraska Institute of Science (NIS) pools all of its endowment funds so that it can obtain the benefits of a large and diverse investment portfolio. The institute recently acquired a commercial office building as an investment property. What woul..
An all-equity business has 100 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization ( a recap). It will raise $1 billion in debt and repur..
Suppose an individual invests $23,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 2.7 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating e..
Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. Construct a spreadsheet to calculate the payback period, internal rat..
If the relevant tax rate is 31 percent, what is the aftertax cash flow from the sale of this asset? what is the OCF for this project?
What will the value of your portfolio be if you simply continued to hold the shares?
Officials of Danville, determining that the city needed additional administrative space, decided to acquire an available office building. Aware that city voters were unlikely to approve a bond issue to finance the purchase of the building, they decid..
You require a return of 12% to invest in GDL. How much would you pay for a share of the company today?
You are examining balance sheets for 2012 and 2013 and you observe that a company's net fixed assets increased from $45 million to $50 million. The income staement states that depreciation was $2 million. If it's the case that the company purchased a..
Define an asset allocation. Explain how would you advise your nephew to allocate his funds
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