Would you accept the project if the firm were unlevered

Reference no: EM131327754

You are the manager of a financially distressed corporation that has $5 million in loans, which come due in 30 days. Your firm has $4 million cash on hand. Suppose that a longtime supplier of materials to your firm is planning to exit the business but has offered to sell your company a large supply of material at a bargain price of $4.5 million-but only if payment is made immediately in cash.

If you choose not to acquire this material, the supplier will offer it to a competitor. Your firm will then have to acquire the materials at market prices, totaling $5 million, over the next few months.

a. Assuming that you are operating the firm in the shareholders' best interests, would you accept the project? Why or why not?

b. Would you accept this project if the firm were unlevered? Why or why not?

c. Would you accept this project if the company were organized as a partnership? Why or why not?

Reference no: EM131327754

Questions Cloud

Which project would bondholders prefer and why : Assuming that the investors are concerned only about expected returns, which project would stockholders prefer? Why? Which project would bondholders prefer? Why?

How will the headhunter find applicants : Kforce, Inc. is a top professional staffing agency. They have been selected to assist the Mayo Clinic in hiring a system-wide CIO (chief information officer) due to the difficulty the human resources division has had trying to fill this job.There ..

What is price at which firm needs to issue the new share : What is the price at which the firm needs to issue the new shares so that the existing shareholders capture the full benefit associated with the new project?

Find the rate of change of force with respect to distance : Find the rate of change of force with respect to distance.

Would you accept the project if the firm were unlevered : Assuming that you are operating the firm in the shareholders' best interests, would you accept the project? Why or why not?

Which supplies prepared meals for corporate aircraft : Meals on Wings Inc., which supplies prepared meals for corporate aircraft, needs to purchase new broilers. The new broilers would replace broilers purchased 10 years ago for $105,000, The new broilers will occupy space currently leased to another fir..

Compute the value of magnum : Magnum Enterprises has net operating income of $5 million.- Compute the value of Magnum, assuming that the present value of bankruptcy costs are $10 million.

Find the velocity v of the body as a function of t : Find a relationship between v and s, then show that s satisfies the differential equation s' = ½s.

User Account

All Pages