Kyra Ltd. is finance solely with equity. The company considers to obtain a loan of €1,000,000 from a local bank against an interest rate of 8%.This loan will be repaid in 2 years with equal amounts per year
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Kyra Ltd. is finance solely with equity. The company considers to obtain a loan of €1,000,000 from a local bank against an interest rate of 8%.This loan will be repaid in 2 years with equal amounts per year.The current corporate tax rate is 35%.Calculate based on the Modigliani & Miller’s proposition 1 with taxes what the added value of the company will be after the announcement of the acceptance of the loan.
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- Capital Computer Corporation takes out a $10,000 loan to finance the purchase of new physical capital. It must repay the loan in full with interest in one year. The interest rate is 10 percent and the applicable corporate tax rate is 30 percent. What is the present value savings from the deductibility of the interest payment from Capital Computer Corporation’s taxes? Please round your answer to the nearest dollar.Philander Limited requires a bank loan of R225 000 in order to finance it’s operations and is considering options from two banks, namely Bucks and Wealth Bank.Bucks Bank will charge an interest rate on the loan at a lending rate of 2,5% above the prime rate if the loan is taken out for three months. Additionally, commission of 4,25% is charged on any advances made. The current prime rate is 5% higher than the commission percentage. Wealth Bank has offered to charge an interest rate of 10,50% provided the loan is taken out for eight months but their commission percentage (%) is 0,50% higher than that is charged by Bucks Bank on any advances made. REQUIRED: Calculate the difference in the effective annual rates of interest offered by both banks if the company borrows the funds from Bucks Bank over three months and Wealth Bank over eight months.Round off all calculations to two (2) decimal placesThe Barrell Company is approached by a bank that offers to implement a lockbox system of receipts for the firm. If the new system is implemented, it will reduce float by 6 days per year. If Barrell's cost of capital is 11.5% and its annual sales are expected to be P10,00,000, then what is the maximum amount that Barrell is willing to pay for the lockbox system? O P164,438.56 O P18,904.11 O P1,150,000.00 O P1,890.41
- Jolly Banker is calculating the loan price for a $500,000 operating loan to Kelly business. If approved, this loan will be funded with 35% equity capital, and the remaining funds will come from the bank's debt capital. You have the following information about your bank’s outlays: Administrative costs 0.45% Cost of debt 7.00% Cost of equity 5.00% Probability of loss 0.55% Fees paid by the borrower 1.00% Calculate the weighted average cost of debt for this funding request. (Enter your answer in percentage. Round your answer to 2 decimal places)Van Buren Resources Inc. is considering borrowing $100,000 for 182 days from its bank. Van Buren will pay $6,000 of interest at maturity, and it will repay the $100,000 of principal at maturity. a. Calculate the loan’s annual financing cost. b. Calculate the loan’s annual percentage rate. c. What is the reason for the difference in your answers to Parts a and b?The Xeor supply company needs to increase its working capital Tk. 5.4 million. The following three financing alternatives are available (assume a 365 day year).i) Forgo cash discount (granted on a basis of 5/10, net 30) and pay on the final due date.ii) Borrow Tk. 6 million from a bank at 15 percent interest. This alternative would necessitate maintaining a 12 percent compensating balance.iii) Issue Tk. 5.7 million of six-month commercial paper to net Tk. 5.4 million. Assume that new paper would be issued every six months (Note: commercial paper has no stipulated interest rate. It is sold at a discount, and the amount of the discount determines the interest cost to the issuer.) Requirement: Assuming that the firm would prefer the flexibility of bank financing, provided theadditional cost of this flexibility was no more than 3 percent per annum, whichalternative should Xeor select? Why?
- Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.4 million each year. Kohwe's only asset is this investment opportunity. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.7%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is the value of Kohwe if it finances the investment with equity? a. What is the NPV of Kohwe's investment? The NPV of Kohwe's investment is $ million. (Round to two decimal places.) b. What is the value of Kohwe if it finances the investment with equity? The Kohwe finances stment with equity $ million. (Round decimal places.)GBA Company wishes to raise $5,000,000 with debt financing. The funds will be repaid with interest in 1 year. The treasurer of GBA Company is considering three sources: i. Borrow USD from Citibank at 1.50% ii. Borrow EUR from Deutsche Bank at 3.00% iii. Borrow GBP from Barclays at 4.00% If the company borrows in euros or British pounds, it will not cover the foreign exchange risk; that is, it will change foreign currency for dollars at today’s spot rate and buy foreign currency back 1 year later at the spot rate prevailing then. The GBA Company has no operations in Europe. A representative of GBA contacts a local academic to provide projections of the spot rates 1 year in the future. The academic comes up with the following table: Currency Spot Rate Projected Rate 1 Year in the Future USD/GBP 1.5 1.55 USD/EUR 0.95 0.85 What are the projected USD/GBP rate and USD/EUR rate for which the expected interest costs would be the same for the three…GBA Company wishes to raise $5,000,000 with debt financing. The funds will be repaid with interest in 1 year. The treasurer of GBA Company is considering three sources: i. Borrow USD from Citibank at 1.50% ii. Borrow EUR from Deutsche Bank at 3.00% iii. Borrow GBP from Barclays at 4.00% If the company borrows in euros or British pounds, it will not cover the foreign exchange risk; that is, it will change foreign currency for dollars at today’s spot rate and buy foreign currency back 1 year later at the spot rate prevailing then. The GBA Company has no operations in Europe. A representative of GBA contacts a local academic to provide projections of the spot rates 1 year in the future. The academic comes up with the following table: Currency Spot Rate Projected Rate 1 Year in the Future USD/GBP 1.5 1.55 USD/EUR 0.95 0.85 What is the expected interest rate cost for the loans in EUR and GBP?
- The Patel Company has several financial issues to solve. As the company’s Financial Analyst you have been asked to answer the following 2 questions: Their bank will lend them $100,000 for 90 days at a cost of $1,200 interest. What is the company’s effective annual rate? A major supplier has granted credit terms of 1/10 N120. Assuming the company can borrow any amount of money at the rate you have calculated above (in part 1), should the company take the discount? (Your answer must be supported with a calculation of the cost of not taking the discount – using either simple or effective annual rate)A firm needs $1.2 million in additional funds. These can be borrowed from a commercial bank with a loan at 7 percent for one year or from an insurance company at 9 percent for six years. The tax rate is 30 percent. What will be the firm's earnings under each alternative if earnings before interest and taxes (EBIT) are $415,000? Round your answers to the nearest dollar. Commercial bank: $ Insurance company: $ If EBIT will remain $415,000 next year, what will be the firm's earnings under each alternative if short-term interest rates are 5 percent? Round your answers to the nearest dollar. Commercial bank: $ Insurance company: $ If EBIT will remain $415,000 next year, what will be the firm's earnings under each alternative if short-term interest rates are 13 percent? Round your answers to the nearest dollar. Commercial bank: $ Insurance company: $Suppose that you have generated the estimates listed below from a pro forma analysis for a company that had requested a three year loan. The loan is a $1.5 million term loan with the equal annual payments of principals. The P&I payments are due at the end of each year with the annual interest rate = Prime rate + 1.5%. Yr.1 Yr. 2 Yr. 3 Capital expenditure 250,000 125,000 75,000 Cash dividends 140,000 140,000 140,000 Cash flow from operations before interest expense 750,000 780,000 800,000 Assuming the Prime rate = 7.5% each year. What will be the interest payment at year 3? a). 25,000 b). 50,000 c). 45,000 d). 53,000 e). 10,000