Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 19, Problem 10PS
Summary Introduction

To determine: The amount of debt

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JJ Corporation is analyzing its option to restrict its credit terms. Current sales level is P6,000,000, average receivables balance is P500,000, bad debts on sales is 10%. With the new policy, sales will be P5,000,000, average receivables balance will be P200,000, and bad debts on sales will be 2% The variable cost rate is 60% and the effective cost of capital is 13%. Based on these available information, what is the net benefit/(cost) of ihis change in policy?
Company Coinbase is looking to expand its business and considering to borrow from the market. Coinbase has been offered the rates per annum on a $500 million 5-year loan by its bank: (SOFR: Secured Overnight Financing Rate) shown below. With the quotes from its bank, the floating rate is cheaper given the SOFR is 3% at present. However, the board of Coinbase fears that the interest rate will continue rising and think it is too risky to have variable liability in a medium time horizon. They wish to borrow with a fixed liability. Company Biance on the other hand, is to seek opportunities by having floating exposure. The offered rates per annum on a $500 million 5-year loan for Biance are also shown below. Design a swap contract that can facilitate the objectives of Coinbase and Biance. The swap contract should be equally beneficial to both companies. Company Biance Company Coinbase Fixed Rate 5.00% 7.00% Floating Rate SOFR+1.50% SOFR+2.00%
If a bank has a positive interest-sensitive gap, one of the possible management responses would be to: wait for the interest rates to rise or be shorten asset decrease interest-sensitive increase interest-sensitive     The First National Bank of Trinidad reports a net interest margin of 5.83 percent. It has total interest revenues of $275 million and total interest expenses of $210 million. What will be the bank's earning assets total? $4,717 million $3,602 million $1,115 million $3,790 million     The First National Bank of Trinidad reports a net interest margin of 5.83 percent. It has total interest revenues of $275 million and total interest expenses of $210 million. This bank has earnings assets of $1,115. Suppose this bank's interest revenues rise by 8 percent and its interest expenses and earnings assets rise by 10 percent what is this bank's new net interest margin? 83 percent 09 percent 59 percent 38 percent     If Fifth National Bank's asset duration exceeds its…
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