Thangmo Company is a large manufacturing firm in Cherating that was created 20 years ago by the Thangmo family. It was initially financed with an equity investment by the Thangmo family and 10 other individuals. Over time, Thangmo Company obtained substantial loans from finance companies and commercial banks. The interest rate on the loans is tied to market interest rates and is adjusted every six months. It has a credit line with a bank in case it suddenly needs additional funds for a temporary period. It has purchased Treasury securities that it could sell if it experiences any liquidity problems. Thangmo Company has assets valued at about RM50 million and generates sales of about RM100 million per year. Some of its growth is attributed to its acquisitions of other firms. Because of its expectations of a strong Malaysian economy, Thangmo plans to grow in the future by expanding its business and by making more acquisitions. It expects that it will need substantial long-term financing and plans to borrow additional funds either through loans or by issuing bonds. It is also considering issuing stock to raise funds in the next year. Thangmo closely monitors conditions in financial markets that could affect its cash inflows and cash outflows and thereby affect its value. 1. Assume, Thangmo is a listed company at Bursa Malaysia. If the government guarantees today that it will pay creditors if Thangmo goes bankrupt in the future: i. predict what will happen to interest rates on Thangmo's bonds? ii. what will happen to the interest rate on treasury securities?
Thangmo Company is a large manufacturing firm in Cherating that was created 20 years ago
by the Thangmo family. It was initially financed with an equity investment by the Thangmo
family and 10 other individuals.
Over time, Thangmo Company obtained substantial loans from finance companies and
commercial banks. The interest rate on the loans is tied to market interest rates and is adjusted
every six months. It has a credit line with a bank in case it suddenly needs additional funds for
a temporary period. It has purchased Treasury securities that it could sell if it experiences any
liquidity problems.
Thangmo Company has assets valued at about RM50 million and generates sales of about
RM100 million per year. Some of its growth is attributed to its acquisitions of other firms.
Because of its expectations of a strong Malaysian economy, Thangmo plans to grow in the
future by expanding its business and by making more acquisitions. It expects that it will need
substantial long-term financing and plans to borrow additional funds either through loans or
by issuing bonds. It is also considering issuing stock to raise funds in the next year. Thangmo
closely monitors conditions in financial markets that could affect its
outflows
1. Assume, Thangmo is a listed company at Bursa Malaysia. If the government
guarantees today that it will pay creditors if Thangmo goes bankrupt in the future:
i. predict what will happen to interest rates on Thangmo's bonds?
ii. what will happen to the interest rate on treasury securities?
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