Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Textbook Question
Chapter 6, Problem 15P
Lear Inc. has
a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 7 percent. Lear’s earnings before interest and taxes are
b. As an alternative, Lear might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing and the balance with short-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be
c. What are some of the risks and cost considerations associated with each of these alternative financing strategies?
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Students have asked these similar questions
BG Company has P8,000,000 in
current assets, P3,500,000 of which
are considered permanent current
assets. In addition, the firm has
P6,000,000 invested in fixed assets.
BG Company wishes to finance all
fixed assets and permanent current
assets plus half of its temporary
current assets with long-term
financing costing 15%. Short-term
financing currently costs 10%. BG
Company's earnings before interest
and taxes are P2,200,000. Income
tax rate is 40%.How much would BG
Company's earnings after taxes be
under this financing plan?
P112,500
O P85,000
P127,500
O P225,000
a) Pavan Limited has made plans for the year 2022-23. It is estimated that
the Company will employ total assets of 25,00,000; 30% of assets
being financed by debt at an interest cost of 9%p.a. The direct cost for
the year are estimated at 15,00,000 and all other operating expenses
are estimated at 2,40,000. The sales revenue is estimated at
22,50,000. Tax rate is assumed to be 50%. Required to calculate: (i)
Net profit margin (ii)Return on assets
(a) The firm earns 5% on current assets and 15% on fixed assets. The firm's current liabilities cost 7% to maintain and the average annual cost of long-term funds is 20 %.
Flum Packages, Inc.
Current assets
RM10,000
Current Liabilities
RM5,000
Fixed assets
RM20,000
Long-term debt
RM12,000
Equity
RM13,000
Total
RM30,000
Total
RM30,000
(i) Calculate the firm's initial net working capital.
(ii) Calculate the firm's initial ratio of current assets to total assets.
b. Critically evaluate THREE (3) advantages of commercial paper that usually used by the largest and most credit-worthy companies.
Chapter 6 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
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