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    Interest Rates and the Cost of Debt

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    Label Arithmetic Sequence or a Geometric Sequence

    A person deposited $500.00 in a savings account that pays 5% annual interest that is compounded yearly. At the end of 10 years how much money will be in the savings account? Please show years 1-10 thank you, and how you came up with this answer.

    Estimate interest rates, inflation adjustment, pure interest rate

    Part a) You have been assigned to estimate the interest rates that your company may have to pay when borrowing money in the near future. The following information is available. kPR = 2% MR = 0.1% for a 1 year loan increasing by 0.1% for each additional year LR = 0.05% for a 1 year loan increasing by 0.05% for each additio

    Collateralized Debt Obligations

    OXFORD INVESTMENT GROUP Delta Bank and Trust was heavily involved in making home loans during the housing boom. Initially Delta held the loans until maturity. However, as the boom gradually increased over the past two decades Delta packaged the loans and sold them to investors. At first they held the loans for 5-7 years be

    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

    The following information relates to the debt securities investments of Wildcat Company. 1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of $300,000 at 100 plus accrued interest. Interest is payable April 1 and October 1. 2. On April 1, semiannual interest is received 3. On July 1, 9% bonds of Sampson, Inc. were purchased. These bonds with a par value of $200,000 were purchased at 100 plus accrued interest. Interest dates are June 1 and December 1 4. On September 1, bonds with a par value of $60,000, purchased on February 1, are sold at 99 plus accrued interest 5. On October 1, semiannual interest is received 6. On December 1, semiannual interest is received 7. On December 31, the fair value of the bonds purchased February 1 and July 1 are 95 and 93, respectively (a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are available-for-sale securities (b) If Wildcat classified these as held-to-maturity securities, explain how the journal entries would differ from those in part (a).

    The following information relates to the debt securities investments of Wildcat Company. 1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of $300,000 at 100 plus accrued interest. Interest is payable April 1 and October 1. 2. On April 1, semiannual interest is received 3. On July 1, 9%

    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.

    Rick and Stacy Stark, a married couple, are interested in purchasing their first boat. They have decided to borrow the boat's purchase price of $100,000. The family is in the 28% federal income tax bracket. There are two choices for the Stark family: they can borrow the money from the boat dealer at an annual interest rate of 8%, or they could take out a $100,000 second mortgage on their home. Currently, home equity loans are at rates of 9.2%. There is no problem securing either of these two alternative financing choices. Rick and Stacy learn that if they borrow from the boat dealership, the interest will not be tax-deductible. However, the interest on the second mortgage will qualify as being tax-deductible on their federal income tax return. a. Calculate the after-tax cost of borrowing from the boat dealership. b. Calculate the after-tax cost of borrowing through a second mortgage on their home. c. Which source of borrowing is less costly for the Stark family?

    Rick and Stacy Stark, a married couple, are interested in purchasing their first boat. They have decided to borrow the boat's purchase price of $100,000. The family is in the 28% federal income tax bracket. There are two choices for the Stark family: they can borrow the money from the boat dealer at an annual interest rate of 8%

    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

    Raviv Industries has $100 million in cash that it can use for a share repurchase. Suppose instead Raviv invest funds in an account paying 10% interest for one year. a) If the corporate tax is 40%, how much additional cash will Raviv have at the end of the year of net of corporate taxes? b) If investors pay a 20% tax rate on capital gains, by how much will the value of their shares have increased, net of capital gains taxes? c) If investors pay a 30% tax rate on interest income, how much would they have had if they invested the $100 million on their own? d) Suppose Raviv retained the cash so that it would not need to raise new funds from outside investors for an expansion it has planned for next year. If it did raise new fund, it would have to pay issuance fees. How much does Raviv need to save in issuance fees to make retaining the cash beneficial for its investors? (Assume fees can be expensed for corporate tax purposes.) (Show equations and calculations)

    Raviv Industries has $100 million in cash that it can use for a share repurchase. Suppose instead Raviv invest funds in an account paying 10% interest for one year. a) If the corporate tax is 40%, how much additional cash will Raviv have at the end of the year of net of corporate taxes? b) If investors pay a 20% tax rate on ca

    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?

    Dallas Instruments has a large bond issue whose covenants require: (1) that DI's interest coverage ratio exceeds 4.0; (2) that DI's ratio of tangible assets to long-term debt exceeds 1.50; and (3) that cumulative dividends and share repurchases not exceed 60% of cumulative earnings since the date of the issuance of the bonds. DI has earnings before interest and taxes of $70 million and interest expense of $14 million. Tangible assets are $400 million and long-term debt is $175 million. Since the bonds were issued, DI has earned $200 million, paid dividends of $40 million, and repurchased $40 million of common stock. Is DI in compliance with its bond covenants?

    A1. (Bond covenants) Dallas Instruments has a large bond issue whose covenants require: (1) that DI's interest coverage ratio exceeds 4.0; (2) that DI's ratio of tangible assets to long-term debt exceeds 1.50; and (3) that cumulative dividends and share repurchases not exceed 60% of cumulative earnings since the date of the issu

    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