Friendly Financial has $190 million in consumer loans with an average interest rate of 15 percent. The bank also has $116 million in home equity loans with an average interest rate of 10 percent. Finally, the company owns $26 million in corporate securities with an average rate of 7 percent. Managers at Friendly Financial estimate that next year its consumer loan portfolio will rise to $236 million and the interest rate will fll to 13 percent. They also estimate that its home equity loans will fall to $110 million with an average interest rate of 12 percent, and its corporate securities portfolio will increase to $34 million with an average rate of 9 percent. Required: Estimate Friendly Financial's revenues for the coming year. (Enter your answer in thousands of dollars.)

Friendly Financial has $190 million in consumer loans with an average interest rate of 15 percent. The bank also has $116 million in home equity loans with an average interest rate of 10 percent. Finally, the company owns $26 million in corporate securities with an average rate of 7 percent. Managers at Friendly Financial estimate that next year its consumer loan portfolio will rise to $236 million and the interest rate will fll to 13 percent. They also estimate that its home equity loans will fall to $110 million with an average interest rate of 12 percent, and its corporate securities portfolio will increase to $34 million with an average rate of 9 percent. Required: Estimate Friendly Financial's revenues for the coming year. (Enter your answer in thousands of dollars.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 17P: The Raattama Corporation had sales of $3.5 million last year, and it earned a 5% return (after...

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The Raattama Corporation had sales of $3.5 million last year, and it earned a 5% return (after taxes) on sales. Recently, the company has fallen behind in its accounts payable. Although its terms of purchase are net 30 days, its accounts payable represents 60 days’ purchases. The company’s treasurer is seeking to increase bank borrowing in order to become current in meeting its trade obligations (that is, to have 30 days’ payables outstanding). The company’s balance sheet is as follows (in thousands of dollars): How much bank financing is needed to eliminate the past-due accounts payable? Assume that the bank will lend the firm the amount calculated in part a. The terms of the loan offered are 8%, simple interest, and the bank uses a 360-day year for the interest calculation. What is the interest charge for 1 month? (Assume there are 30 days in a month.) Now ignore part b and assume that the bank will lend the firm the amount calculated in part a. The terms of the loan are 7.5%, add-on interest, to be repaid in 12 monthly installments. What is the total loan amount? What are the monthly installments? What is the APR of the loan? What is the effective rate of the loan? Would you, as a bank loan officer, make this loan? Why or why not?
Gladys Bank and Trust has $430 million in consumer loans with an average interest rate of 7.95 percent. The bank also has $310 million in home equity loans with an average interest rate of 5 percent. Finally, the company owns $130 million in government securities with an average rate of 3 percent. Managers at Gladys Bank and Trust estimate that next year its consumer loan portfolio will fall to $390 million and the interest rate will increase to 9.45 percent. They also estimate that its home equity loans will increase to $350 million with an average interest rate of 7 percent, and its government securities portfolio will increase to $145 million with an average rate of 13.50 percent. Required: Estimate the revenues for the coming year for Gladys Bank and Trust. Note: Enter your answer in thousands of dollars. Interest revenue
ok Gladys Bank and Trust has $440 million in consumer loans with an average interest rate of 8.05 percent. The bank also has $320 million in home equity loans with an average interest rate of 5 percent. Finally, the company owns $140 million in government securities with an average rate of 3 percent. Managers at Gladys Bank and Trust estimate that next year its consumer loan portfolio will fall to $400 million and the interest rate will increase to 9.55 percent. They also estimate that its home equity loans will increase to $360 million with an average interest rate of 7 percent, and its government securities portfolio will increase to $155 million with an average rate of 14.50 percent. Required: Estimate the revenues for the coming year for Gladys Bank and Trust. Note: Enter your answer in thousands of dollars. Interest revenue CARRER
The Boyd Corporation has annual credit sales of $2.8 million. Current expenses for the collection department are $38,000, bad debt losses are 1.6%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $23,000 per year. The change is expected to increase bad - debt losses to 2.6% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $2,825,000 per year. Suppose that the opportunity cost of funds is 18%, the variable cost ratio is 65%, and taxes are 40%. Assuming a 365-day year, calculate the cost of carrying receivables under the current policy and the new policy. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar.
The Boyd Corporation has annual credit sales of $1.6 million. Currentexpenses for the collection department are $35,000, bad-debt losses are1.5%, and the days sales outstanding is 30 days. The firm is consideringeasing its collection efforts such that collection expenses will be reduced to$22,000 per year. The change is expected to increase bad-debt losses to 2.5%and to increase the days sales outstanding to 45 days. In addition, sales areexpected to increase to $1,625,000 per year.Should the firm relax collection efforts if the opportunity cost of funds is16%, the variable cost ratio is 75%, and taxes are 40%?
Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rates next year would lead to the bank's return on equity being reduced to zero. Assume that the bank is subject to a tax rate of 30%.
In year 1, AMC will earn $2,200 before interest and taxes. The market expects these earnings to grow at a rate of 3.3% per year. The firm will make no net investments (i.e., capital expenditures will equal depreciation) or changes to net working capital. Assume that the corporate tax rate equals 25%. Right now, the firm has $5,500 in risk-free debt. It plans to keep a constant ratio of debt to equity every year, so that on average the debt will also grow by 3.3% per year. Suppose the risk-free rate equals 5.5%, and the expected return on the market equals 12.1%. The asset beta for this industry is 1.41. a. If AMC were an all-equity (unlevered) firm, what would its market value be? b. Assuming the debt is fairly priced, what is the amount of interest AMC will pay next year? If AMC's debt is expected to grow by 3.3% per year, at what rate are its interest payments expected to grow? c. Even though AMC's debt is riskless (the firm will not default), the future growth of AMC's debt is…
In year 1, AMC will earn $2,900 before interest and taxes. The market expects these earnings to grow at a rate of 2.7% per year. The firm will make no net investments (i.e., capital expenditures will equal depreciation) or changes to net working capital. Assume that the corporate tax rate equals 45%. Right now, the firm has $7,250 in risk-free debt. It plans to keep a constant ratio of debt to equity every year, so that on average the debt will also grow by 2.7% per year. Suppose the risk-free rate equals 4.5%, and the expected return on the market equals 9.9%. The asset beta for this industry is 1.93. Using the WACC, the expected return for AMC equity is 25.71%. Assuming that the proceeds from any increases in debt are paid out to equity holders, what cash flows do the equity holders expect to receive in one year? At what rate are those cash flows expected to grow using the FTE method? (Hold all intermediate calculations to at least 6 decimal places and round to the…
In year 1, AMC will earn $2,900 before interest and taxes. The market expects these earnings to grow at a rate of 2.7% per year. The firm will make no net investments (i.e., capital expenditures will equal depreciation) or changes to net working capital. Assume that the corporate tax rate equals 45%. Right now, the firm has $7,250 in risk-free debt. It plans to keep a constant ratio of debt to equity every year, so that on average the debt will also grow by 2.7% per year. Suppose the risk-free rate equals 4.5%, and the expected return on the market equals 9.9%. The asset beta for this industry is 1.93. a. If AMC were an all-equity (unlevered) firm, what would its market value be? (Hold all intermediate calculations to at least 6 decimal places and round to the nearest cent.) b. Assuming the debt is fairly priced, what is the amount of interest AMC will pay next year? If AMC's debt is expected to grow by 2.7% per year, at what rate are its interest payments expected…
Jenkins, Inc., has equity with a market value of $23.1 million and debt with a market value of $9.24 million. The cost of debt is 10 percent per year. Treasury bills that mature in one year yield 6 percent per year, and the expected return on the market portfolio over the next year is 11 percent. The beta of the company's equity is 1.16. The firm pays no taxes. a. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) c. What is the cost of capital for an otherwise identical all-equity firm? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Debt-equity ratio b. Weighted average cost of capital C. Cost of capital 0.40 11.29% %
Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If you invest in the corporate debt of Happy Time Inc. today, what is your expected percentage return on this investment? Cash flow in the next year Economy Probability Amount Boom 0.3 Normal 0.4 Recession 0.3 O 36.87% O -26.37% 64.8% O-16.63% $110 million $101 million $61 million
Edsel Research Labs has $28.20 million in assets. Currently half of these assets are financed with long-term debt at 5 percent and half with common stock having a par value of $10. Ms. Edsel, the Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 5 percent. The tax rate is 30 percent. Under Plan D, a $7.05 million long-term bond would be sold at an interest rate of 7 percent and 705,000 shares of stock would be purchased in the market at $10 per share and retired. Under Plan E, 705,000 shares of stock would be sold at $10 per share and the $7,050,000 in proceeds would be used to reduce long-term debt. a-1. How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.) Earnings per Share Current Plan D Plan E a-2. Which…