Finance - Debt & Equity Relevant costs and limits that should be considered when managing the firm's available cash balance are listed below. Debt Interest on long-term debt 5%-6% 1% Short Term Debt (Overdraft) interest premium $21,800,000 Short Term Debt (Overdraft) limit* (25%of current equity) Long Term Debt Raise limit $97,400,000 Equity (Stock) $43,600,000 Equity issue limit* (50% of issued shares) Issue discount on market price 0% Minimum Issue Share Price (Face Value) $5.00 $7,400,000 Equity repurchase limit * (8.5% of issued shares) Repurchase premium on market price Minimum number of issued shares 0% 800,000 $5.00 Minimum Share Price for Equity Repurchase Dividend limit* (50% of retained earnings) $22.01 per share Interest rate on dividends 10% Minimum Share Price for Dividend Payment $5.00 Risk free rate of return 6% Market rate of return 10% By comparing which items from the finance section suggests that the required return for funders from shareholders is higher than the market return required by lenders a. Company tax rate and Depreciation rate b. Repurchase premium on market price and Short Term Debt (Overdraft) interest premium c. Interest on Long term debt and Market rate of return d. Minimum Issue Share Price (Face Value) and Long Term Debt Raise limit

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Finance - Debt & Equity
Relevant costs and limits that should be considered when managing the firm's available cash balance are listed below.
Debt
Interest on long-term debt
5%-6%
1%
Short Term Debt (Overdraft) interest premium
$21,800,000
Short Term Debt (Overdraft) limit* (25% of current equity)
Long Term Debt Raise limit
$97,400,000
Equity (Stock)
Equity issue limit* (50% of issued shares)
$43,600,000
Issue discount on market price
0%
Minimum Issue Share Price (Face Value)
$5.00
$7,400,000
Equity repurchase limit * (8.5% of issued shares)
Repurchase premium on market price
0%
Minimum number of issued shares
800,000
$5.00
Minimum Share Price for Equity Repurchase
Dividend limit* (50% of retained earnings)
$22.01 per share
Interest rate on dividends
10%
Minimum Share Price for Dividend Payment
$5.00
Risk free rate of return
6%
Market rate of return
10%
By comparing which items from the finance section suggests that the required
return for funders from shareholders is higher than the market return required by
lenders
a. Company tax rate and Depreciation rate
O b. Repurchase premium on market price and Short Term Debt (Overdraft)
interest premium
c. Interest on Long term debt and Market rate of return
d. Minimum Issue Share Price (Face Value) and Long Term Debt Raise limit
Transcribed Image Text:Finance - Debt & Equity Relevant costs and limits that should be considered when managing the firm's available cash balance are listed below. Debt Interest on long-term debt 5%-6% 1% Short Term Debt (Overdraft) interest premium $21,800,000 Short Term Debt (Overdraft) limit* (25% of current equity) Long Term Debt Raise limit $97,400,000 Equity (Stock) Equity issue limit* (50% of issued shares) $43,600,000 Issue discount on market price 0% Minimum Issue Share Price (Face Value) $5.00 $7,400,000 Equity repurchase limit * (8.5% of issued shares) Repurchase premium on market price 0% Minimum number of issued shares 800,000 $5.00 Minimum Share Price for Equity Repurchase Dividend limit* (50% of retained earnings) $22.01 per share Interest rate on dividends 10% Minimum Share Price for Dividend Payment $5.00 Risk free rate of return 6% Market rate of return 10% By comparing which items from the finance section suggests that the required return for funders from shareholders is higher than the market return required by lenders a. Company tax rate and Depreciation rate O b. Repurchase premium on market price and Short Term Debt (Overdraft) interest premium c. Interest on Long term debt and Market rate of return d. Minimum Issue Share Price (Face Value) and Long Term Debt Raise limit
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