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The Clare M. & JAcob B. Company needs a 10,000 loan for the next 30 days. it is trying to decide which of the tree alternatives to use:
Alternative A: Forgo the discount on its trade credit agreement that offers terms 3/10, net 30.
Alternative B: borrow the money from Bank K. Smi., which has offered to lend the firm $10,000 for 30 days at an APR of 20%. The loan has a 2% loan origination fee.
Alternative C: borrow the money from Rawan M. Bank which has offered to lend the firm $10,000 for 30 days at an APR of 12%. The R.M bank will require a (no-interest) compensating balance of 25% of the face value of the loan and will charge a $200 loan origination fee, which means the Clare & Jacob must borrow even more than $10,000.
Which alternative is the cheapest source of financing for Clare & Jacob? (show your calculations)
There are two firms in the same business: Air Wolf and Red Wolf. Both are in the same risk class and each has an EBIT (Earnings Before Interest & Taxes) of $10 million. Air Wolf has no debt and Red Wolf has $4 million of debt. The cost of equity is 8..
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $3,000 per month for the next three years and then $6,000 per month for two years after that. If the bank is charging customers 10.00 percent APR,..
Use Excel to draw the security market line based on a market rate equivalent to the S&P 500 2014 return (google it) and a risk free rate equivalent to the current 10 year Treasury rate. Be sure to label your axis and cite your sources.
The yield to maturity on a bond is the rate of return that equates the present value of the bond's future cash flows with the bonds
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Wilkes, Inc., must invest in a pollution-control program in order to meet federal regulations to stay in business.- If the cost of capital for Wilkes is 15 percent, which pollution-control program should Wilkes select?
You would like to buy a Mercedes Benz Class A. You have about $20,000 but the car costs $55,000. If you can earn 3% per annum, how much do you have to invest (today) to buy the car in 2 years? Assume the car price stays the same.
The multiplier on Treasury note futures is $100,000. How many contracts do you buy or sell?
Describe the differences between the bond ratings. Identify the strengths and weaknesses of each rating.
What is the net profit per share when the futures contract expires? Use a strategy that has zero net cash flows today.
Suppose my friend April is considering to refinance her mortgage. She bought her house 60 months ago at $127,000. What factors would affect her choice and how?
Bond X is a premium bond making annual payments. The bond has a coupon rate of 8.8 persent, a YTM of 6.8 % and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond has a coupon rate of 6.8% , a YTM of 8.8% and also ha..
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