Scenario Two years ago, Larry started a new business. Now he needs additional capital to finance additional growth and is meeting with a group of "angel" investors. If they decide to make the loan, they will do so without the use of a middleman or other intermediary. Wellington Industries would like to borrow additional debt capital. The company has hired a firm to assist in the sale of a new issue of 10-year bonds. Anderson Animations, Inc. holds cash balances in an institution that, in turn, loans out the funds to other individuals and companies. Direct Transfer O Indirect Transfer through an Investment Banking House O Indirect Transfer through a Financial Intermediary

Scenario Two years ago, Larry started a new business. Now he needs additional capital to finance additional growth and is meeting with a group of "angel" investors. If they decide to make the loan, they will do so without the use of a middleman or other intermediary. Wellington Industries would like to borrow additional debt capital. The company has hired a firm to assist in the sale of a new issue of 10-year bonds. Anderson Animations, Inc. holds cash balances in an institution that, in turn, loans out the funds to other individuals and companies. Direct Transfer O Indirect Transfer through an Investment Banking House O Indirect Transfer through a Financial Intermediary

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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LAGER Ltd, a listed company, has had the following balance sheets from 2016 to 2018 (reported in $million). LAGER is considering to invest $25 million in a new fixed asset, and has asked you, a banker to LAGER, to finance the entirety of this amount by a five years loan. Required: a) Assuming the need to invest $25 million was well founded, would you, from a pure risk perspective, approve the loan? Why and why not? Justify your analysis with the appropriate financial ratios. b) What other factors you would consider in addition to the financial performance in part (a) to grant the loan to LAGER Ltd.? Why? LAGER Ltd. Financial Data 2016 2017 2018 2016 2017 2018 Fixed assets 70 98 138 30 30 Paid up Capital Retained 30 42 56 earnings 28 39 55 Inventory Acct Long Term 3650 70 59 84 133 receivables debt Marketable Account 11 4 7 21 29 41 securities payable Short Cash 1 2 1 68 11 Term debt Total Assets 146 193 271 Total Liabilities 146 193 271
Allen plans to purchase a house in Lindfield this year, the selling price for the house is $3.8 million. Hewants to borrow 80% of the total capital from the bank using a principal and interest loan and pay 30-yearmonthly mortgage payments. CBA bank received his loan application and provided a valuation report basedon current market conditions. However, the bank valuation is conservative, stating the market value is only$3.5 million, and to lower the risk from the bank’s side, it only approves the loan with an LVR (Loan to ValueRatio) of 70% or less.Assuming that Allen wishes to borrow as much as possible from CBA bank, how much will his monthlypayments be for such a mortgage? The current interest rate from CBA is 3.19% P.A. Ignore other costs.
An enterprise owner is considering three options to raise funds for his business activities, each with a different source of capital: • option I-business activities financed exclusively with equity of $600,000, • option II equity amounts to $450,000, the remaining $150,000 is borrowed from a bank at the annual rate of 7.6%, option III equity amounts to $350,000, the remaining $250,000 is borrowed from a bank at the annual rate of 10.4%. The annual net sales revenue is expected to reach $760,000 with total operating costs being $687,000. The enterprise pays 19% income tax. Based on the information provided, determine: return on equity depending on the adopted financing option and its increase (AROE) possible to obtain due to using the debt, ● the degree of financial leverage for each financing option, .threshold EBIT and the threshold return on equity needed for financial leverage to work.
It's your first day on the job as a stock analyst and you are trying to assess the value of Beacon Industries. Your predecessor built a financial model that estimates cash flows for Beacon, but it only extends for 6 years. You know that in order to get the total value of the company, you need to add a so-called terminal value for all the cash flows in years 7 and beyond. This perpetuity will be based on the Year 6 cash flow, which is $19 million. You know that the discount rate that investors are using to assess Beacon is 9%, and you expect the cash flows to grow in perpetuity at 1.5% annually. If the PV of the 6-year cash flow model is $80 million, what is the total value of Beacon?
John Tye has just been hired as the new corporate finance analyst at I-Ell Enterprises and has received his first assignment. John is to take the $25 million in cash received from a recent divestiture and use part of these proceeds to retire an outstanding $10 million bond issue and the remainder to repurchase common stock. However, the bond issue cannot be retired for another two years. If John can place the funds necessary to retire this $10 million debt into an account earning 6 percent compounded monthly,how much of the $25 million remains to repurchase stock?
A family friend owns a private comany and wants to raise some cash. The company is not yet public so your friend wants to structure a 3-year debt instrument that looks like a bond that can be sold. The deal is for each one of these that you buy today for $975, you will recieve every quarter a $110 payment. And at the end of the three years (after getting all those payments) you will get a final of S1, 100 payment. What is the yield to maturity after this investment? please show work in excel.
) Your firm has the following structure: you own all the shares of the Dixit paper cup company. Dixit has $2,000,000 of outstanding perpetual debt with a 10% coupon selling at par. Dixit is currently selling paper cups which produce earnings before interest of $210,000 per year. You receive the following offer from your engineer friend. He would help you liquidate Dixit’s assets and with the proceeds you could build solar powered scooters. Your financing would remain the same. You believe that there is a 75% chance that solar powered scooters would not be particularly successful. In this case they would generate only $100/year. However, there is a 25% chance that solar powered scooters would be very successful. In this case they would generate $500,000 per year. Assume your equity discount rate is 15%. Assume the firm pays no taxes. b) What is the value of the solar powered scooters investment assuming a 15% discount rate? c) What is the value of your equity under each of these…
Hi there, I'm trying to solve this corporate finance problem without using excel. John has a 5 year mortgage contract on $332,100 amortized over 25 years at a rate of 5% per year compounded semiannually. At the end of the 5 year contract, the outstanding principal is $250,000. John's interest rate is still the same but he wishes to switch to weekly payments. How much will John's weekly payments be?
A company lends money to small businesses. The total amount per project is $ 50,000. The borrowers can benefit for once from this deal. Mr. Roger applies for a loan, and gets $ 40,000 according to his business' conditions. He needs $ 60,000 for his project, so he finances the needed money from his own money. The interest rate applied by the company on the loans is 5%, and Mr. Roger wants to remunerate himself for 3% on his own participation. Find the capital structure for the project of Mr. Roger What is the average cost of capital for Mr. Roger (in %) If Mr. Roger can repay only $ 30,000 to the company, what would be the credit risk for the company?
A venture capital fund is considering investing in a startup that is seeking to raise $1,500,000 in equity capital. The venture had previously raised $250,000 from angel investors and the founder had invested $50,000 of her savings in her venture. At the time this investment was under consideration, the company was projecting to be profitable three years from now. Net income in year three is projected to be $225,000. Because of projected losses in year one and two, cumulative retained earnings entering year three are projected to be negative $120,000. The venture capital firm will not invest unless the projected return on equity in year three is at least 30% If you were employed by the venture capital fund, based on this information alone, would you recommend that the $1,500,000 investment be made? Yes, the projected return on equity in year three is greater than 30% No, the projected return on equity in year three is less than 30%
Suppose Clinton decides to use $9,500 currently held as savings to make a financial investment. One method of making a financial investment is the purchase of stock or bonds from a private company. Suppose Arcadia, a biomedical research firm, is selling stocks to raise money for a new lab. This practice is called finance. Buying a share of Arcadia stock would give Clinton the firm. In the event that Arcadia runs into financial difficulty, will be paid first. Suppose Clinton chooses to buy 250 shares of Arcadia stock. Which of the following statements are correct? Check all that apply. The Dow Jones Industrial Average is an example of a stock exchange where he can purchase Arcadia stock. Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Clinton's shares to decline. The price of his shares will rise if Arcadia issues additional shares of stock. Alternatively, Clinton could undertake their financial investment by purchasing bonds…
PLEASE ANSWER IT IMMEDIATELY. I NEED THE ANSWER NOW A businessman invested P50,000 in a company that engages in the manufacture of hollow blocks. In return, he receives 3,000 per year for 5 years. Compute the rate of return on investment.

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