36. Retro Gym has three creditors: a bank with seniority in the amount of $350, Senior Bondholders in the amount of $190, and a steel trade creditor with no priority in the amount of $40. Retro Gym has proposed the following two debt restructuring plans. How much does the Bank prefer its preferred plan to its less preferred plan? / And is there a creditor coordination problem? "lan A: 50% chance the value of the firm -$690 50% chance the value of the firm $90 "lan B: 30% chance of the value of the firm $410 70% chance the value of the firm = $135 %3D A) $220; yes B) $220; no C) $20.50; yes D) $20.50: no

36. Retro Gym has three creditors: a bank with seniority in the amount of $350, Senior Bondholders in the amount of $190, and a steel trade creditor with no priority in the amount of $40. Retro Gym has proposed the following two debt restructuring plans. How much does the Bank prefer its preferred plan to its less preferred plan? / And is there a creditor coordination problem? "lan A: 50% chance the value of the firm -$690 50% chance the value of the firm $90 "lan B: 30% chance of the value of the firm $410 70% chance the value of the firm = $135 %3D A) $220; yes B) $220; no C) $20.50; yes D) $20.50: no

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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Dallas Company's current ratio is 4 to 3. The company is negotiating a loan, and the company's management understands that a higher (i.e., better) current ratio will reduce the company's cost of borrowing (interest rate). Which of the following transactions will improve Houston Company's current ratio? Select one: a. making a payment on a long-term debt b. using cash to pay current liabilities c. purchasing inventory on account d. collecting on some of the company's accounts receivable e. none of the above
/
A commercial bank with a structured loan portfolio as shown below is faced with a spike indemand for mortgages and motor vehicle loans from clientsi. What advice would you give the credit manager as to the impact of the spike on the overall riskprofile of the lending portfolio which currently stands at:Motor Vehicle loans: 30%Mortgage loans: 50%Credit Card Advances: 20%ii. What are the risks would you advise the credit manager to consider in the structuring of loans ,given the demand.
50
PJ Morgan Bank has bank capital equal to 10% of total assets. Most of its deposits are short-term and adjustable rate. PJ Morgan's assets are long maturity and fixed rate. What is true of the bank? |- Bank capital will fall below 10% of total assets if interest rates increase. II - Bank profits will increase if interest rates drop. III - The bank will have to borrow from the Fed if interest rates increase. IV - The bank has a positive gap. O ,Il and IV O , II, II and IV O l and Il only O , II, and IV
A3)
3) Suppose there is a 10% reserve requirement, and the bank has the following Balance Sheet Assets Reserves Loans Securities Liabilities 55M Deposits 250M Bank Capital 45M 350M 50M Now, let's suppose there is a deposit outflow of $60 million. If the bank only finances its reserve shortages by borrowing from the Federal Reserve, show the bank's balance sheet after the deposit outflow and receiving the loan from the Fed.
20. Suppose that before any forward guidance was given a bank believed the FFR would have the values shown in the table below but that with forward guidance it now expects lower rates. Year before guidance w/ forward guidance 1 0% 0% 2 3% 0% 3 5% 0% I How much lower is the average FFR with forward guidance in this example? (Give your answer as a decimal, so if it changed from 5% to 3% you would enter 0.02)
Q2. A company currently has annual sales of Rs. 500,000 and an average collection period of 30 days. It is considering a more liberal credit policy. If the credit period is extended, the company expects sales and bad-debt losses to increase in following manner: Credit policy А Increase in credit period Increase in sale (Rs) Bad debts % of total sales 25,000 1.2 35,000 1.5 40,000 1.8 50,000 ABCDE 10 days 15 30 42 2.2 The selling price per unit is Rs 2. Average cost per unit at the current level of operations is Rs. 1.50 and variable cost per unit is Rs. 1.20. if current bad debt loss is 1% and required rate of return on investment is 20%, which credit policy should be undertaken? Ignore taxes and assume 360 days in a year.
Problem 5. Your company is AA-rated by a credit-rating agency, and must borrow money according to the table 1 provided if it will start several projects that have been proposed. See the following table 2 for each project proposals project description, their duration and anticipated return: Table 1. Maturity 2 yr AA 2 yr A 5yr AAA 5yr AA 5yr A 10yr AAA 10yr AA 10yr A 20yr AAA 20yr AA 20yr A Rate, 1% 1.32 1.48 1.94 2.22 2.51 2.69 3.26 3.53 3.97 4.21 4.42 Table 2. Projects New Delivery Vehicles b. Updated Computer Hardware а. C. Updated Computer Software d. Corporate Rebranding e. Relocate Headquarters f. Parts Inventory System Which of the projects shown in table 2 should we undertake and why? Duration (yrs) 5 yrs 2 yrs 5 yrs 10 yrs 20 yrs 10 yrs Expected Return, ROR (%) 9% 1% 3% 3.5% 6% 3%
3

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