Share
Explore BrainMass

Interest Rates and the Cost of Debt

Effective Annual Rate Difference of competing Terms

A firm needs to arrange financing for its expansion program. One bank offers to lend the required $1,000,000 on a loan which requires interest to be paid at the End of each Quarter. The quoted rate is 10 percent, and the principal must be repaid at the End of the year. A second lender offers 9 percent, daily compounding (365-

Debt and Capital Structure: Preferred Stock

Most firms are able to use 30 to 50 percent debt in their capital structure without exceeding norms acceptable to creditors and investors. How does the firm decide on the appropriate weights for debt, preferred stock, and common stock financing.

Interest Rate

You are considering an investment with a quoted return of 10% per year. If interest is compounded daily, what is the effective return on this investment? a. 1.11% b. 10.00% c. 10.25% d. 10.47% e. 10.52%

Time Value of Money : Compounding Interest

Suppose you deposit $10,000 for 2 years at a rate of 10%. a) Calculate the return (A) if the bank compounds annually (n = 1). Round your answer to the hundredth's place. If a bank compounds continuously, then the formula takes a simpler, that is where e is a constant and equals approximately 2.7183. Calculate A with c

Compound Interest

1. Calculate the return (A) if the bank compounds daily (n = 365). Round the answer. using this formula: A=P(1+r/n)^ nt 2. If a bank compounds continuously, then the formula takes a simpler, that is A= P e(n)squared where e is a constant and equals approximately 2.7183. Calculate A with continuous compounding

What is Kd?

Company A has a tax rate of 20% and purchases and has a bond yielding 10%. What is Kd? Lindbergh Airlines is planning to make an offer for Flight Simulators, Inc. The stock of Flight Simulators is currently selling for $30 a share. a. If the tender offer is planned at a premium of 60 percent over market price, what will

Annual Rate of Interest and Cash Discount Terms

One very interesting calculation [I think it somewhere in the reading, if not you can get it with a Google] is the annual rate of interest which an organization can earn if it takes advantage of cash discount terms like 2/10 n30. The discount to be take here is 2% but that is not an annual rate, and interest rates are almost al

The Disney Company issues a $1,000 par value, 7.55% Coupon SEMIANNUAL bond with a maturity of 100 years. Immediately after purchase at par, suppose that all interest rates fall by 100 basis points. For the first two years (between time 0 and time 2), what is the holding period return (total return) on this bond? State your answer in annual rates. Compare your answer to the Effective Annual Rate of this bond.

The Disney Company issues a $1,000 par value, 7.55% Coupon SEMIANNUAL bond with a maturity of 100 years. Immediately after purchase at par, suppose that all interest rates fall by 100 basis points. For the first two years (between time 0 and time 2), what is the holding period return (total return) on this bond? State your a

Capitalization of Interest

Zucker Airline is converting form piston type planes to jets. Delivery time for the jets is 3 years, during which substantial progress payments must be made. The multi million dollar cost of the planes cannot be financed from working capital. Zucker must borrow funds for the payments. Because of high interest rates and the

Comounding Interest

A family in the Federal Reserve study group borrowed $120,000. The loan is to be repaid in 13 years at 12% interest, compounded annually. How much will be repaid at the end of 13 years?

Structure of Interest Rates

Discuss the term structure of interest rates: 1) Supply versus demand of investment funds 2) Inflationary expectations 3) Risk characteristics 4) Yield curves And the main thing: why it is important and in which component of the corporate financing it matters?

A Discussion On Index And Interest Rate Futures

1. A portfolio manager controls $5 million in common stocks. In anticipation of a stock market decline, the manager decides to hedge the portfolio using S&P 500 futures contract. The portfolio beta is 1.20, and the current value of the S&P 500 futures contract selected is 238.50. a) Calculate the number of futures contracts t

Cost of debt

Poulsbo Manufacturing Inc., is currently an all-equity firm that pays no taxes. The market value of firm's equity is $3 million. The cost of this unlevered equity is 15% per annum. Poulsbo plans to issue 600,000 in debt and use the proceeds to repurchase stock. The cost of debt is 4% semi-annually. I want to figure out: Where

Suppose you deposit $20,000 for 3 years at a rate of 8%.

The formula for calculating the amount of money returned for deposit money into a bank account or CD (Certificate of Deposit) is given by the following: a) Calculate the return (A) if the bank compounds annually (n = 1). b) Calculate the return (A) if the bank compounds quarterly (n = 4). Round your answer to the hundredth

Politics & "Interest Organizations'

What are interest organizations and what are their characteristics? How are they similar to political parties? How do they differ from political parties?

Demand Function and Compounding Interest

1. Find the total amount of money consumers are willing to spend to get q0 units of the a particular commodity given the demand function D(q): D(q) = (300 / 4q+3) dollars per unit : q0 = 10 2. When Sue turns 30 she begins making annual deposits of $2,000 into a bond fund that pays 8% annual interest compounded contin

Managerial Finance: Investments: earnings, preferred stocks, returns, interest

1-Publicly Announced Earnings Research indicates that 80% of a company's stock price reflects the present value of cash flows expected to occur at least five or more years into the future. If this is correct, then why is there so much emphasis on publicly announced current quarterly earnings results? 2-Who is Warren Buffett?

Finding Real Interest Rates

In early 1996, the short-term interest rate in France was 5.7 percent, and forecast French inflation was 2.8 percent. At the same time, the short-term German interest rate was 2.6 percent and forecast German inflation was 1.6 percent. What were the real interest rates in France and Germany? Why are they different?

Indifferent point of EBIT

(The following information relates to Questions 19 to 22) Firm X with a 40% tax rate is comparing two financing plans. Plan A involves 2,000 shares of common stock and $20,000 of debt. Plan B consists of 2,500 shares of common stock and $10,000 of debt. The annual interest rate is 5%. Presently, this company is all-equity

Retirement Plans: value of annuity

Use nominal rate 4.8% compounded monthly: (1) James and Jane retire with $500,000 in their retirement account. If they want that to last for 25 years, how much can they take out each month. (2) Nick and Nora are 30 and intend to retire at age 65; they are just starting a retirement plan. How much must they deposit each m

Carrying amount and interest expense of bonds

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2006. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. Payment Cash Effective Decrease in Outstanding Interest Balance Balance 0 11,487,747 1 400,000 344,632 55,368 11,432

Effective and Nominal Interest

Very easy effective and nominal interest questions. I need full solutions for problems 4.6, 4.8, 4.11, 4.15, 4.19, 4.21, 4.30, 4.32, 4.37, 4.45, 4.54, 4.56. (See attached file for full problem description.) 4.6 For an interest rate of 12% per year compounded every 2 months, determine the nominal interest rate per (a) 4 m

APR and EAR

1) You have just purchased a new warehouse. To finance the purchase, you've arranged for a 30-year mortgage loan for 80% of the $1 200 000 purchase price. The monthly payments on this loan will be $9 300. What is the APR on this loan? The EAR? 2) A local finance company quotes a 13 percent interest rate on one year loans. So

Capitalizing versus expensing interest for plant, property and equipment.

Case 7-1, Expensing Interest Now or Later is a scenario from Johnson and Johnson & Subsidiaries, Consolidated Statements of Earnings for 2001, 2000 and 1999. The first three questions relate to expensing and capitalizing interest , plus identifying it in the financial statements. The fourth question asks when capitalized int

In 2003, Betty invests $100,000 for a 25% partnership interest in an activity in which she is a material participant. The partnership reports losses of $300,000 in 2003 and $300,000 in 2004. Betty's share of the partnership's losses is $75,000 in 2003 and $75,000 in 2004.

In 2003, Betty invests $100,000 for a 25% partnership interest in an activity in which she is a material participant. The partnership reports losses of $300,000 in 2003 and $300,000 in 2004. Betty's share of the partnership's losses is $75,000 in 2003 and $75,000 in 2004. How much of the losses from the partnership can Betty