Answered: Your boss, whose background is in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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To avoid the foreclosure of a 9,000 square foot parking lot near USC, a real estate developer was discussing alternatives with her lender. The developer bought the parking lot in an LLC for $7.2 million in 2017, with family and friends as equity investors and with a $3.6 million land loan at a 6% annual interest rate fully amortizing over 25 years with recourse to the borrower LLC. The developer planned to rezone the land from commercial use to residential use to build student housing to be completed in 2020, but it was taking years longer than she expected to get the necessary governmental approvals and by 2023 the investors were no longer able to continue making the required monthly debt service payments on the land loan. Which of the following loan workout alternatives would be LEAST likely to be acceptable to their current lender? a. Permanently reducing the interest rate on the mortgage loan or writing down the outstanding principal balance of the loan b. Finding a…
Why is it financially unhealthy for an individual to maintain a large percentage of debt financing over a long period of time, that is, to be highly leveraged?
Mini Case: FINANCING EAST COAST YACHTS’S EXPANSION PLANS WITH A BOND ISSUE After Dan’s EFN analysis for East Coast Yachts (see the Mini Case in Chapter 3), Larissa has decidedto expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $40 millionin new 20-year bonds to finance new construction. Dan has entered into discussions with Kim McKenzie,an underwriter from the firm of Crowe & Mallard, about which bond features East Coast Yachts shouldconsider and also what coupon rate the issue will likely have. Although Dan is aware of bond features, heis uncertain as to the costs and benefits of some of them, so he isn’t clear on how each feature wouldaffect the coupon rate of the bond issue. Respond to the following questions: 1. You are Kim’s assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages…

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