Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 18, Problem 17QP
Costs of Borrowing [LO3] In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following:
1. Pay 1.95 percent per quarter on any funds actually borrowed.
2. Maintain a 4.5 percent compensating balance on any funds actually borrowed.
3. Pay an up-front commitment fee of .15 percent of the amount of the line.
Based on this information, answer the following:
a. Ignoring the commitment fee, what is the effective annual interest rate on this line of credit?
b. Suppose your firm immediately uses $130 million of the fine and pays it off in one year. What is the effective annual interest rate on this $130 million loan?
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Consider a loan repayment plan described by the following initial value problem, where the amount borrowed is B(0) = $40,000, the monthly payments are $600, and B(t) is the unpaid balance of the loan. Use the initial value problem to answer
parts a through c.
B' (+) =0.03B - 600, B(0) = 40,000
a) Find the solution of the initial value problem and explain why B is an increasing solution.
B(t) =
Why is B an increasing function?
O A. The function is increasing because it is an exponential function with a positive coefficient and a negative exponent.
O B. The function is increasing because it is an exponential function with a positive coefficient and a positive exponent.
O C. The function is increasing because it is an exponential function with a positive exponent.
O D. The function is increasing because it is an exponential function with a positive coefficient.
b) What is the most that you can borrow under the terms of this loan without going further into debt each month?
The…
Investment Solution (IS) and ExpressIT (EIT) both need to borrow $100 000 to finance the development of new products. IS can borrow fixed-interest-rate funds at 9 percent or variable-rate funds at the LIBOR plus 1.5% in the debt market. EIT, being less creditworthy, incurs higher costs of borrowing which are a fixed rate of 11 percent and a variable rate of LIBOR plus 2.5%.
Design a swap and calculate the amount of saving on the net cost of borrowing if BankCredit offers an interest swap contract with each IS and EIT, given that BankCredit retains a 20bp between the rates at which it deals equally with them.
Label the graph below and show all calculations leading to your conclusions.
Suppose you are offered a project with the following payments:
Year
Cash Flows
0
$ 9,800
1
−5,300
2
−4,000
3
−3,100
4
−1,700
a. What is the IRR of this offer?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
b. If the appropriate discount rate is 15 percent, should you accept this offer?
c. If the appropriate discount rate is 21 percent, should you accept this offer?
d-1. What is the NPV of the offer if the appropriate discount rate is 15 percent?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
d-2. What is the NPV of the offer if the appropriate discount rate is 21 percent?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Chapter 18 Solutions
Fundamentals of Corporate Finance
Ch. 18.1 - What is the difference between net working capital...Ch. 18.1 - Prob. 18.1BCQCh. 18.1 - List five potential sources of cash.Ch. 18.1 - Prob. 18.1DCQCh. 18.2 - Prob. 18.2ACQCh. 18.2 - Prob. 18.2BCQCh. 18.2 - Prob. 18.2CCQCh. 18.3 - What keeps the real world from being an ideal one...Ch. 18.3 - What considerations determine the optimal size of...Ch. 18.3 - Prob. 18.3CCQ
Ch. 18.4 - Prob. 18.4ACQCh. 18.4 - Prob. 18.4BCQCh. 18.5 - Prob. 18.5ACQCh. 18.5 - Describe two types of secured loans.Ch. 18.6 - Prob. 18.6ACQCh. 18.6 - In Table 18.6, what would happen to Fun Toys...Ch. 18 - Prob. 18.1CTFCh. 18 - A firm has an operating cycle of 64 days and a...Ch. 18 - Prob. 18.4CTFCh. 18 - Prob. 18.5CTFCh. 18 - Operating Cycle [LO1] What are some of the...Ch. 18 - Prob. 2CRCTCh. 18 - Prob. 3CRCTCh. 18 - Cost of Current Assets [LO2] Loftis Manufacturing,...Ch. 18 - Operating and Cash Cycles [LO1] Is it possible for...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Prob. 8CRCTCh. 18 - Use the following information to answer Questions...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Changes in the Cash Account [LO4] Indicate the...Ch. 18 - Prob. 2QPCh. 18 - Changes in the Operating Cycle [LO1] Indicate the...Ch. 18 - Prob. 4QPCh. 18 - Calculating Cash Collections [LO3] The Morning...Ch. 18 - Prob. 6QPCh. 18 - Prob. 7QPCh. 18 - Calculating Payments [LO3] Sedman, Corp., has...Ch. 18 - Calculating Payments [LO3] The Torrey Pine...Ch. 18 - Calculating Cash Collections [LO3] The following...Ch. 18 - Calculating the Cash Budget [LO3] Here are some...Ch. 18 - Prob. 12QPCh. 18 - Prob. 13QPCh. 18 - Prob. 14QPCh. 18 - Calculating the Cash Budget [LO3] Wildcat, Inc.,...Ch. 18 - Prob. 16QPCh. 18 - Costs of Borrowing [LO3] In exchange for a 400...Ch. 18 - Prob. 18QPCh. 18 - Prob. 1MCh. 18 - Prob. 2MCh. 18 - Prob. 3M
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