Fin/6990 Week 1

* If the price was set at $90,000 the new fixed cost percent would be 23% as that is the closest to $90,000 at $89,997

(d) $1 billion 10 year debenture @ 7.5% with 18.18 warrants at $ 55 exercisable until 1988.

The fixed cost is assumed that Larry has discovered the other fixed cost incurred. The total investment is $800,000. The worst case scenario assumes that Larry got a total line of credit from the bank in the amount of $400,000 and invested $400,000 from other source. The Notes payable – short term and the long-term debt is (11.8 + 3.7) = 15.5 % from Table F in the handout. The Loan interest and payment per year is ($400,000 * 0.155)= $62,000. The Income data from Table F indicates that there is a 0.4% of all other expenses net out of the total sales which equals to $109,908 (5,700,666 gallons * $4.82 *0.4%) .

What information to you need to find the 3 year forward rate starting 2 years from now?

The company has an agreement with a bank that allows the company to borrow the exact amount needed at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.

1.00 point A bond with a 7-year duration is worth $1,073, and its yield to maturity is 7.3%. If the yield to maturity falls to 7.21%, you would predict that the new value of the bond will be approximately _________.

- The Bet-r-Bilt Company has a 5-year bond outstanding with a 4.30 percent coupon. Interest payments are paid semi-annually. The face amount of the bond is $1,000. This bond is currently selling for 93 percent of its face value. What is the company's pre-tax cost of debt?

2. Estimate the unrealized gain/loss on this trade as of November 19 (two weeks after the initial transaction date). Assume the following: repo rate stays at 0.15% for the full two week period with overnight rolling over of the loan (3 days on the weekend), the fixed swap rate is at 4.0%, the YTM on the Treasury is 4.2%. The Treasury will have an interest payment on November 15, so be sure to take this into account. The swap will not have a payment (either fixed or floating), but do account for the accrued interest on both sides of the trade, as well as the accrued interest on the Treasury bond (Treasury uses actual/actual day count, as you know). The floating piece of the swap uses actual/360 day count (stated in the case). The fixed piece of the swap uses actual/actual day count to calculate interest. Use DV01 measures to estimate the change in value of the swap and the bond. For the repo, assume actual/360 day count to calculate interest paid (interest is paid daily or on Monday in the case of a weekend).

a. Compute the single indirect cost allocation rate that the bank would use to allocate the total indirect costs presented in Exhibit B. (Total indirect costs/total value of checks processed, in thousands)

At an interest rate of 15% per year (3.75% for three months, the amount to borrow equals

So, the 20 year corporate bond interest rate associated with the company’s rating is 3.86.

Scenario 2 shows the practice having moderate growth and there is no decrease in the associate fee. Even though the growth rate is 8% and not 17.5%, the company can still repay the loan because the CATO is positive throughout the years. Miller might not be able to repay the loan that fast, like scenario 1, but would be able to repay it in 10 years.

a. Compute the single indirect cost allocation rate that the bank would use to allocate the total indirect costs presented in Exhibit B.

RJR needs yen cash flows in years 1-5 given above. To convert these at a 7.1% swap rate into dollar cash flows at 10.92% :

6. Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4%. How would this affect his decision?