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Interest Rates and the Cost of Debt

What interest rate are you being charged?

You borrow $125,000 and must make annual loan payments of $10,030.33 for 20 years, starting at the end of the year. What interest rate are you being charged? a. 6% b. 5% c. 3% d. 4% e. 2%

Describe Federal Reserve history. What makes the Fed unique among central banks?

Federal Reserve Describe the history of the Federal Reserve System (the Fed), and not central banking in general. What makes the Fed unique among central banks? Include an explanation of all the tools the Fed uses to contract and expand the economy using money supply and interest rates. Your case should have an INTRODUCTI

On December 31, 2007, the Firstar Bank enters into a debt restructuring agreement with Nicole Bradtke Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $2,000,000 note receivable by the following modifications: 1. Reducing the principal obligation from $2,000,000 to $1,600,000. 2. Extending the maturity date from December 31, 2007, to December 31, 2010. 3. Reducing the interest rate from 12% to 10%. Bradtke pays interest at the end of each year. On January 1, 2011, Bradtke Company pays $1,600,000 in cash to Firstar Bank. Instructions (a) Based on FASB Statement No. 114, will the gain recorded by Bradtke be equal to the loss recorded Firstar Bank under the debt restructuring? (b) Can Bradtke Company record a gain under the term modification mentioned above? Explain. (c) Assuming that the interest rate Bradtke should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Bradtke Company after the debt restructuring. (d) Prepare the interest payment entry for Bradtke Company on December 31, 2009. (e) What entry should Bradtke make on January 1, 2011?

(Term Modification without Gain-Debtor's Entries) On December 31, 2007, the Firstar Bank enters into a debt restructuring agreement with Nicole Bradtke Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $2,000,000 note receivable by the following modifications: 1.

Financial Management

First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. If you made a $38,000 deposit in each bank, you would earn $ ??? more from your Second City Bank account at the end of 7 years.

West Company: Amount to charge to bad debt expense under two methods

West Company had the following account balances at December 31, 2011 before recording bad debt expense for the year: Accounts receivable $900,000 Allowance for uncollectible accounts (credit balance) 16,000 Credit Sales for 2011 1,750,000 West is considering the following methods of estimating bad debts for

Under the assumption that Ideko's market share will increase by 0.5% per year, you determine that the plant will require an expansion in 2010. The cost of this expansion will be $15 million. Assuming the financing of the expansion will be delayed accordingly, calculate the projected interest payments and the amount of the projected tax rate shields (assuming that the interest rates on the term loans remain the same as in chapter) through 2010 (33.3%).

Under the assumption that Ideko's market share will increase by 0.5% per year, you determine that the plant will require an expansion in 2010. The cost of this expansion will be $15 million. Assuming the financing of the expansion will be delayed accordingly, calculate the projected interest payments and the amount of the proje

Interest and Principal Payment for TropiKana

TropiKana Inc. has just borrowed 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 7.00% per year and the Euro depreciates against the dollar from $1.15/ at the time the loan was made to $1.10/ at the end of the first year, how much interest and principal will TropiKana p

Risk Free Debt, and Risk of Firms Equity

What is wrong with the following argument: "If a firm issues debt that is risk free, because there is no possibility of default, the risk of the firm's equity does not change. Therefore, risk-free debt allows the firm to get the benefit of a low cost of capital of debt without raising its cost of capital of equity"?

present value of the interest tax shields from this debt

Your firm currently has $100 million in debt outstanding with a10% interest rate. The terms of the loan require the firm to repay $25 million of the balance each year. Suppose that the marginal corporate tax rate is 40%, and that the interest tax shields have the same risk as the loan. What is the present value of the interest t

Interest rate fundamentals: Carl's information on the real rate of return

Carl Foster, a trainee at an investment banking firm, is trying to get an idea of what real rate of return investors are expecting in today's marketplace. He has looked up the rate paid on 3-month U.S. Treasury bills and found it to be 5.5%. He has decided to use the rate of change in the Consumer Price Index as a proxy for the

Interest Rate Risk and Bond Pricing

Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bondholders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct

Value of straight-debt

Thomson Engineering is issuing new 30-year bonds that have warrants attached. If not for the attached warrants, the bonds would carry an 11% annual interest rate. However, with the warrants attached the bonds will pay an 8% annual coupon. There are 30 warrants attached to each bond, which have a par value of $1,000. What is

Zhao Automotive issues fixed-rate debt at a rate of 7.00%. Zhao agrees to an interest rate swap in which it pays LIBOR to Lee Financial and Lee pays 6.8% to Zhao. What is Zhao's resulting net payments? Net payment = Libor + .02% How would I calculate this with equations?

Zhao Automotive issues fixed-rate debt at a rate of 7.00%. Zhao agrees to an interest rate swap in which it pays LIBOR to Lee Financial and Lee pays 6.8% to Zhao. What is Zhao's resulting net payments? Net payment = Libor + .02% How would I calculate this with equations?

Interest and Reinvestment Rate Risk

2. Which of the following bonds has the most interest rate risk and why? Which has the most reinvestment rate risk and why? a) A 5-year bond with a 9% annual coupon b) A 5-year bond with a zero coupon c) A 10-year bond with a 9% coupon d) A 10-year bond with a zero coupon.

Shorthand

Why do we need to use this shorthand so much in business?

Expanded Analysis - Toyota Motors

Perform an expanded analysis on the financial statements of Toyota Motors. Please use the most current financial statements available on www.sec.gov. Objectives: - Perform horizontal and vertical analysis, selected liquidity, profitability, and solvency ratios, and other selected financial ratios. - Complete an executi

Compounded Interest Problem

Suppose that $1000 are deposited in an account paying 8% annual interest for 10 years. If $2000 had been deposited instead of $1000, would there be twice the money in the account after 10 years? Explain.

interest rates and retirement plans

You are thinking of retiring. Your retirement plan will pay you either $250000 immediately on retirement or $350000 five yrs. after the date of retirement. Which alternative should you choose if the interest rate is a) 0% per yr b) 8% per yr c) 20% per yr

Bank One and Bank ENN interest rates: Arbitrage opportunity

Suppose Bank One offers a risk free interest rate of 5.5% on both savings and loans and Bank ENN offers a risk free interest rate at 6% on both savings and loans. a) What arbitrage opportuity is available? b) Which bank would experience a surge in the demand for loan? Which bank would receive a surge in deposit. c) What wou

Research Study: University students buried in debt

I am currently working on a research project on UK universities students' buried in debts. The main purpose of my research is to find out the causes, consequences, and solutions to universities' students who are in debts. First of all, I really need some suggestions on where I can find credible resources for my research, ther

Crown Company Sold Property to Leary: Balance of Discount on Notes Payable

On January 1, 2010, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $2,000,000 zero-interest-bearing note payable in five equal annual installments of $400,000, with the first payment due December 31, 2010. The prevailing rate of interest for a note o