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Habine Inc produced stationary for 75 years. However, due to lifestyle changes fewer people are using fancy stationary to write letters. This has resulted in declining revenues and therefore, the company has a need for a short term loan to help them while they reformulate their business model. The company has loyal customers but its lender have become somewhat concerned about the company's financial situation. Recently, the owner went to the lender and was quoted a rate of 12% for a one year loan - this rate is higher than previous loan rates.
The owner wants your help to figure out what might be causing this problem. He tells you inflation is stable at 3%, and the pure interest rate is 4%. Liquidity risk for companies of this size and long standing reputation is 1% and for a 1 year loan maturity risk is zero. In the past the company has had a default risk premium of 2%. Using the interest rate model determine what the reason is for the high rate quote on the loan. Solve and write a sentence which would explain the reason.
What is the net income for firm?
An investor was expecting a 18% return on his portfolio with beta of 1.25 before the market risk premium decreased from 8% to 6%. Based on this change, what return will now be expected on the portfolio?
Suppose you buy a 20-year bond with face value of $1000 which pays annual coupons with a coupon rate of R=5% . Let's say that that rate is consistent with the market rates, so you pay $1000 ('par'). After 5 years, right after the 5th coupon has been ..
Prepare a single-step pro forma income statement for Calcor Company for the year ended November 30, 2012, assuming that Calcor's planned actions would be carried out and that the 5% increase in unit sales would be realized.
Tannen Industries is considering an expansion. The potential sale of the building represents a real option and therefore should not be charged against project.
Application Report 1: Prepare a 2-3 page report, double spaced using proper APA writing style, that compares the finances of Ford Motor Company (stock symbol: F) to the finances of General Motors (stock symbol: GM)
Treasury bills are currently paying 8 percent and the inflation rate is 3.5 percent. What is the approximate real rate of interest?
What would an investor be willing to pay for, i.e. what is the present value of, common stock (is this significant to the question, why or why not?) in a firm that has no growth opportunities but pays dividends of $6.00 per year, starting today? The ..
What is the true initial cost figure Southern should use when evaluating its project?
Select a company with long term bonds outstanding. There are many examples in the textbook. Locate and analyze a current quotation for that bond. Use figure 10.2 in the textbook as a guide. Compare the current price with the par value. Explain at lea..
You have decided to retire. How large will your annual retirement payment be?
David West has been working on a new technology to improve manufacturing performance.
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