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Question: You currently have $25,000 in the bank, in a savings account that draws 5% interest. Your business needs $25,000, and you are considering two options:
(a) Use the money in your savings account.
(b) Borrow the money from the bank at 6%, leaving the money in the savings account.
Your financial analyst suggests that solution (b) above is better. His logic: The sum of the interest paid on the 6% loan is lower than the interest earned at the same time on the $25,000 deposit. His calculations are illustrated below. Show that this logic is wrong. (If you think about it, it couldn ' t be preferable to take a 6% loan when you are getting 5% interest from the bank. However, the explanation for this may not be trivial.)
Which of the following would NOT be considered a cost of debt financing?
Assume that Kish Inc. hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 = $0.90; P0 = $27.50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of common from retaine..
In Mergers and Acquisitions... why is cash subtracted from the target's debt balance...rather than subtracted from the target's market value of equity?
a semi annually compounded yield of 3.5985 offeredcoupons are paid semi annually how do you calculate the bonds
Computation of Net Present Values and Internal Rate of Returns and Cross Over rates to select among mutually exclusive projects based on cash flows and discounting rates
Reflect on how managing IT projects in a small, local enterprise (of, say, 50 employees) is different from managing projects in a large enterprise with an international presence.
Contrast adjusted gross income to taxable income. Also, address the impact of inflation on tax rates.
Jarrett Enterprises is considering whether to pursue a restricted or relaxed current asset investment policy. The firm's yearly sales are $400,000; its fixed assets are $100,000; debt and equity are each 50% of total assets.
North Star Company, a U.S. based MNC, is considering to establish a subsidiary to capitalize on the removal of Eastern European border restrictions. The subsidiary would manufacture clothing in Germany and target the Eastern European countries for mo..
What are some potential benefits to companies of paying executives with stock options? What are some potential risks to companies of paying executives with stock options?
Clanton Company is financed 75 percent by equity and 25 percent by debt. If the firm expects to earn $30 million in net income next year and retain 40% of it, how large can the capital budget be before common stock must be sold.
Why would it be challenging to properly compare the performance of an equity fund to a fixed-income market?
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