Imagine that you are a banker and one of your corporate client, Company A requested a short- term loan to purchase raw materials from Company B. Both companies A & B have strong financials and there is no negative information on either of those. Company A has very good relations with Company B since, Company A owns 70% of the common shares of Company B. How would you evaluate the loan request based only on the above information?
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- When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm has total current assets of $1,780,195,300 and current liabilities of $1,369,381,000. What is the firm’s current ratio? If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below 1.2? If the company needed to raise its current ratio to 1.5 by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal?When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm had total current assets of $1,907,570,000 and current liabilities of $1,362,550,000. a. What is the firm's current ratio? b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below 1.2? c. If the company needed to raise its current ratio to 1.5 by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal? Question content area bottom Part 1 a. What is the firm's…Mr Rahman the owner of Cahaya Entreprise is interested to apply business financing from Bank Islam Behad. The financing will be used for purchasing business raw materials, payment for water and electrical bill as well as for worker salaries. What is the appropriate form of capital for financing application? Select one:A.Growth capital/ Modal pengembangan B.Working capital C.Fixed capital D.Initial capital
- A common problem facing any business entity is the debt versus equity decision. When funds are required to obtain assets, should debt or equity financing be used? This decision also is faced when a company is initially formed. What will be the mix of debt versus equity in the initial capital structure? The characteristics of debt are very different from those of equity as are the financial implication of using one method of financing as opposed to the other. Cherokee Plastics Corporation is formed by a group of investors to manufacture household plastic products. Their initial capitalization goal is $50,000,000. That is, the incorporators have decided to raise $50,000,000 to acquire the initial assets of the company. They have narrowed down the financing mix alternatives to two: All equity financing $20,000,000 in debt financing and $30,000,000 in equity financing No matter which financing alternative is chosen, the corporation expects to be able to generate a 10% annual return, before…See image attached 1.Compare and analyse the performance of the two companies based on their profit margin, asset turnover, ROCE, and debt equity ratio and explain what the board of Box Limited needs to do to achieve their objective . 2. Which other non-financial measures can influence the decision of the board of Box Limited?A common problem facing any business entity is the debt versus equity decision. When funds are required to obtain assets, should debt or equity financing be used? This decision also is faced when a company is initially formed. What will be the mix of debt versus equity in the initial capital structure? The characteristics of debt are very different from those of equity as are the financial implications of using one method of financing as opposed to the other.Cherokee Plastics Corporation is formed by a group of investors to manufacture household plastic products. Their initial capitalization goal is $50,000,000. That is, the incorporators have decided to raise $50,000,000 to acquire the initial assets of the company. They have narrowed down the financing mix alternatives to two: All equity financing $20,000,000 in debt financing and $30,000,000 in equity financing No matter which financing alternative is chosen, the corporation expects to be able to generate a 10% annual return,…
- Provide a real-life example of a long-term external source of finance used by a listed company in Hong Kong. Describe the nature of this financial arrangement (e.g. purpose, duration, risk assessment, etc.). In your opinion, explain whether this financial arrangement was the right move and suggest alternatives to this arrangement with reference to what you learned in this course, and provide justifications.A company uses a financial instrument for bridge financing. The instrument here is short term, low risk, unsecured and highly liquid. It needed to buy machinery for which it issued equity. This turned out to be expensive as this issue involved floatation costs. The company is large and has good creditworthy and this method has come up as a great help to it. Based on the above case study, answer the following: Which financial instrument is indicated in the above case? Which type of instrument is this? Name the types of floatation costs which are generally involved? How has this method helped the company? Name 2 money market instruments which are issued at discount and redeemed at par.Which of the following is true ? Select one : a . Investment bankers earn a spread based on the success of their placements when they underwrite using a best - efforts basis. b . Investment bankers earn fees based on the success of their placement when they underwrite using firm - commitment basis. c . With best - efforts underwriting, Investment bankers actos principais because they purchase securities from the issuer and sell them at a higher price, d. An investment banker is acting as principais when a firm - commitment offering of securities . e . Answers B and C only .
- 1b) Banks offer overdraft facilities and term loans, among other services, to their corporate clients. Explain the nature and use of overdrafts and term loans and give examples where a companymight wish to use overdraft or a term loan.George H. and James W. have identified two companies, Riccarton Plc and Edinburgh Plc they would be interested in investing. As they can only invest in one of the companies, they have asked you to provide them with an assessment of the performance of both companies based on the following ratios: Return on Capital Employed (ROCE), Current Ratio, Gearing Ratio and Price/Earnings (P/E) Ratio. The following information from the Statement of Financial Position (Balance Sheet) and the Income Statement (Profit and Loss Account) for both companies is available: (a) Calculate the following ratios: • Return on Capital Employed (ROCE) • Current Ratio • Gearing Ratio • Price/Earnings (P/E) Ratio (b) Based on the above ratios explain, which company George H. and James W. should invest in. You should also briefly discuss the limitations of your analysis.An investment vehicle, the investee, is created and financed with a debt instrument held by a debt investor and equity instruments held by some other investors. The equity tranche is designed to absorb the first losses and to receive any residual return from the investee. One of the equity investors who hold 30% ofthe equity is also the asset manager. The investee uses its proceeds to purchase a portfolio of financial assets; thus, exposing them to the credit risk associated with the possible default of principal and interest payments of the assets. The transaction is marketed to the debt investor as an investment. Such investment has minimal exposure to the credit risk associated with the possible default of the assets in the portfolio. It is because of the nature of the assets and of the equity tranche.The returns of the investee are significantly affected by the management of the investee’s asset portfolio. Managing the asset portfolio includes decisions about the selection,…
