Should carson obtain funds to cover payments

Reference no: EM132069757

Question: Recall that Carson Company has obtained substantial loans from finance companies and commercial banks. The interest rate on the loans is tied to market interest rates and is adjusted every six months. It has a credit line with a bank in case it suddenly needs to obtain funds for a temporary period. It previously purchased Treasury securities that it could sell if it experiences any liquidity problems.

If the economy continues to be strong, Carson may need to increase its production capacity by about 50 percent over the next few years to satisfy demand. It is concerned about a possible slowing of the economy because of potential Fed actions to reduce inflation. It needs funding to cover payments for supplies. It is also considering the issuance of stock or bonds to raise funds in the next year.

The prevailing commercial paper rate on paper issued by large publicly traded firms is lower than the rate Carson would pay when using a line of credit. Do you think that Carson could issue commercial paper at this prevailing market rate?

b. Should Carson obtain funds to cover payments for supplies by selling its holdings of Treasury securities or by using its credit line? Which alternative has a lower cost? Explain.

Reference no: EM132069757

Questions Cloud

Quotations concerning the concept of a sense of community : Below are two quotations concerning the concept of a sense of community. Please use these to respond to the prompt:

Find the equilibrium rate of return on treasury bond : The real risk-free rate is 3.05%, inflation is expected to be 3.60% this year, and the maturity risk premium is zero. Ignoring any cross-product terms.

Calculate the duration for the bond : Calculate the duration (Macaulay duration) for the bond. Is the predicted price higher or lower than the actual price? Is this what you expected?

Aflac has been an award-winning campaign for years : (a) How important do you think the "voice of the brand" is? Why not have multiple quacking ducks?

Should carson obtain funds to cover payments : Should Carson obtain funds to cover payments for supplies by selling its holdings of Treasury securities or by using its credit line?

Futures contracts should be entered to minimize risk : How many futures contracts should be entered to minimize risk?

Develop a local csr project : You have just joined a local company for a 4 month internship to develop a local CSR project. The company is a local, small Café with an annual revenue

When hedging one month exposure to price of commodity : What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

Find the payback period for rearden mining operation : Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal.

User Account

All Pages