A 10-year $14,600,000 long-term loan from the American Bank. The loan has the following terms: a. The interest rate is 8.2%, compounded annually. The interest rate is fixed for the life of the loan and is paid at the end of each year. b. Principal is to be repaid in one lump sum at the end of 10 years. c. The bank will charge a $19,000 upfront administrative fee. d. HML will be required to move all banking activities of the company to the Canadian Bank (from the Ottawa Bank, its current financial institution.) This will cost HML $5,500 in fees, either at Canadian or Ottawa. e. HML will agree to a maximum debt to equity ratio of 2-to-1 and pay no dividends in excess of 30% of reported earnings during the life of the loan. Ratios are based on audited financial statements. f. Loan security is a second mortgage on HML’s printing facilities and personal guarantees from the principal shareholders of HML. Prepare case report outlining all alternatives/financial reporting issues
A 10-year $14,600,000 long-term loan from the American Bank. The loan has the following terms: a. The interest rate is 8.2%, compounded annually. The interest rate is fixed for the life of the loan and is paid at the end of each year. b. Principal is to be repaid in one lump sum at the end of 10 years. c. The bank will charge a $19,000 upfront administrative fee. d. HML will be required to move all banking activities of the company to the Canadian Bank (from the Ottawa Bank, its current financial institution.) This will cost HML $5,500 in fees, either at Canadian or Ottawa. e. HML will agree to a maximum debt to equity ratio of 2-to-1 and pay no dividends in excess of 30% of reported earnings during the life of the loan. Ratios are based on audited financial statements. f. Loan security is a second mortgage on HML’s printing facilities and personal guarantees from the principal shareholders of HML. Prepare case report outlining all alternatives/financial reporting issues
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A 10-year $14,600,000 long-term loan from the American Bank. The loan has the following terms: a. The interest rate is 8.2%, compounded annually. The interest rate is fixed for the life of the loan and is paid at the end of each year. b. Principal is to be repaid in one lump sum at the end of 10 years. c. The bank will charge a $19,000 upfront administrative fee. d. HML will be required to move all banking activities of the company to the Canadian Bank (from the Ottawa Bank, its current financial institution.) This will cost HML $5,500 in fees, either at Canadian or Ottawa. e. HML will agree to a maximum debt to equity ratio of 2-to-1 and pay no dividends in excess of 30% of reported earnings during the life of the loan. Ratios are based on audited financial statements. f. Loan security is a second mortgage on HML’s printing facilities and personal guarantees from the principal shareholders of HML. Prepare case report outlining all alternatives/financial reporting issues
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