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Interest Rates and the Cost of Debt

Analyze and discuss three short-term borrowing alternatives

Kellogg Company manufactures its products in 20 countries and distributes them in more than 150 countries. Not too long ago, Kellogg was considering three short-term borrowing alternatives: 1) 90 day commercial paper at a 6.50% discount rate 2) Commercial bank loan with three interest rate alternatives: a) Prime rate with

Describe the QUICS, discuss capitalization, convertible preferred

See attached files. AMR, the parent firm of American Airlines, found its profitability had improved a few years ago. Several years prior, AMR had issued privately about 1.1 billion of convertible preferred stock. As you know, interest is tax deductible whereas dividends are not. AMR decided to offer the preferred stockholders

Short-term interest-bearing debt

Please read this statement and answer the practice questions. Smaller companies treat short-term interest-bearing debt as long-term debt and they also include it in the capital structure to estimate the overall cost of capital of the company." 1.why do you think small companies treat short term debt this way? 2. Do you th

Compensating balances

Tom Sander is a loan officer with Miami National Bank. The bank typically charges 8% APR on loans with a compensating balance requirement of 10%. In order to be competitive with other banks, Sanders will adjust the loan rate based on a customer's compensating balance level. A customer maintaining a balance greater than 10% will

Integrated Case 6-21: Morton Handley & Company, Interest rate determination

Integrated Case 6-21: Morton Handley & Company Interest rate determination. Maria Juarez is a professional tennis player, and your firm managers her money. She has asked you to give her information about what determines the level of various interest rates. Your boss has prepared some questions for you to consider. a. Wh

Stockbridge Debt management ratios

1. Stockbridge Industries has a total asset turnover ratio of 4.1x and net annual sales of $49.2 million. If Stockbridge has $6 million of total debt on its balance sheet, what is the firm's debt ratio? 2. Stockbridge pays 10% annual interest on its outstanding debt. If the firm's total operating costs (including deprecia

Aton can borrow at simple interest or a discounted loan

Aton can choose from two loan offers: $12,000 at 8% simple interest for 9 months, or a $12,000 9-month discounted loan at 7% discount. Based on the actual interest paid and the true rate on the discounted loan, which of the two loan offers will Aton CHOOSE? Explain your answer.

Math solution on Compound Interest

If I borrow $115,700 at 10.5% compounded monthly for 25 years. If I make all the payments (300) how much interest would I pay? Am I suppose to use just the simple calculation of I=PRT or am I forgetting something to make it compounded?

Refinancing of short-term debt

Medvedev Inc., issued $10,000,000 of short-term commercial paper during the year 2006 to finance construction of a plant. At December 31, 2006, the corporation's year-end, Medvedev intends to refinance the commercial paper by issuing long-term debt. However, because the corporation temporarily has excess cash, in January 2007

Money and Banking MC Questions

When the Fed tightens monetary policy during business expansions, the ________ loanable funds shifts to the ______. A) demand for, right B) demand for, left C) supply of, left D) supply of, right Interest rates have fallen since the early 1980s because the A) federal deficit has declined B) federal deficit has in

Compound Interest Scenario

Scenario: As a homeowner I need to take out a home equity loan for home repairs. Borrowing $10,000 how much will it cost in interest to pay the loan off in 5 years if compounded monthly. What is the difference in paying the loan off at the end of 5 years if simple interest is used. I am also looking for a credible loan agen

Bingo Corp: Compare bank loan interest rate to their bonds' coupon rate

Bingo Corporation is determining whether to support $150,000 of its permanent current assets with a bank note or a short-term bond. The firm's bank offers a two year note where the firm will receive $150,000 and repay $175,000 at the end of two years. The firm has the option to renew the loan at market rate. Alternatively, Bingo


The New Millenium Manufacturing Company produces two products. One is a millenium surf kit. The other product is a professional surf-board (short board) used in world class surfing competition. Most of the sales come from the millenium surf product, but recently sales of professional boards have been increasing. The following in

Optimal financing and investment strategy for your scenario

I need help on this assignment. I have to answers the following questions based on a chosen scenario. The selected scenario is: A manufacturing organization considering expansion to India or Brazil Prepare a proposal in which you select the optimal financing and investment strategy for your scenario. The selected scenar

Financial Assets and Interest Rates

Which of the following financial assets would be most susceptible (vulnerable) to a decline in value if interest rates increased? a. a short term fixed income financial asset (ex. short term bond) b. a long term fixed income financial asset (ex. long term bond) c. a long term variable interest rate income financial asset


7 As bond market interest rates increase, the value (i.e., price) of a fixed coupon interest rate bond (i.e., a typical corporate bond) a. does not change b. increases c. decreases d. insufficient information to answer this question e. None of the above or insufficient information 8 In an efficient capital market a

Interest rate alternatives

12 Assuming you will leave your money in the bank for the entire year, which of the following interest rate alternatives would you prefer? a. 11.75 % compounded semi-annually b. 11.75 % compounded quarterly c. 11.45 % compounded weekly d. 11.45 % compounded annually e. None of the above or insufficient information

After tax interest cost

86 If a tax paying firm pays $100,000 in interest what is the after tax interest cost for firm assuming they are in a 40% tax bracket? a. 100,00 since interest is paid after taxes are paid and thus there is no tax shield b. 40,000 since there is a tax shield on interest c. 60,000 since there is a tax shield on inter

Select two major currencies from the past year. What are sim

Select two major currencies from the past year. What are similarities and differences between them? What have been drivers of each currency's performance? How do interest rate movements affect the overall value of currencies? (at least 200 word). please properly cite your references. thanks.

Graduate school finance

A company's 6% coupon rate,semiannual payment,$1,000 par value bond that matures in 30 years sells at a price of $515.16 .The company's federal-plus-state Tax rate is 40%.What is the firm's component cost of of debt for the purposes of calculating WACC(hint base your answer on nominal rate)

Peggy Pink's partnership basis after contributing property

In 2006 Peggy Pink contributed property to a new partnership in return for a 50% interest in capital and profits. The property had a fair market value of $10,000, an adjusted basis of $6,000, and was subject to a $9,000 mortgage which was assumed by the partnership. What was Pink's basis in the partnership as a result of this co

Steven's partnership basis for his interest in Brown Assoc

On June 1, 2008, Mark Stevens received a 20% capital interest in Brown Associates, a partnership, in return for services rendered plus a contribution of assets with a basis to Stevens of $15,000 and a fair market value of $20,000. The fair market value of Steven's 20% interest was $38,000. How much is Steven's basis for his inte