Armbrust Corporation is the maker of fine fitness equipment. Armbrust's bank has been pressuring the firm to improve its liquidity. Which of the followingactions proposed by the CFO do you believe will actually achieve this objective?a. Sell new equity and use the proceeds to purchase a new plant site.-Select-b. Use cash and marketable securities to pay off short-term bank borrowings and accounts payable.-Select- vc. Borrow long-term and use the proceeds to pay off short-term debt.-Select- vd. Sell surplus fixed assets and invest the proceeds in marketable securities.-Select- V

Liquidity is firms ability to pay short term liablitity using short term asset i.e using current…

Armbrust Corporation is the maker of fine fitness equipment. Armbrust's bank has been pressuring the firm to improve its liquidity. Which of the following actions proposed by the CFO do you believe will actually achieve this objective? a. Sell new equity and use the proceeds to purchase a new plant site. b. Use cash and marketable securities to pay off short-term bank borrowings and accounts payable. -Select- c. Borrow long-term and use the proceeds to pay off short-term debt. -Select- v -Select- v d. Sell surplus fixed assets and invest the proceeds in marketable securities. -Select-

Armbrust Corporation is the maker of fine fitness equipment. Armbrust's bank has been pressuring the firm to improve its liquidity. Which of the following actions proposed by the CFO do you believe will actually achieve this objective? a. Sell new equity and use the proceeds to purchase a new plant site. b. Use cash and marketable securities to pay off short-term bank borrowings and accounts payable. -Select- c. Borrow long-term and use the proceeds to pay off short-term debt. -Select- v -Select- v d. Sell surplus fixed assets and invest the proceeds in marketable securities. -Select-

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 21P

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David Lyons, CEO of Lyons Solar Technologies, is concerned about his firm’s level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies average about 30% debt, and Mr. Lyons wonders why they use so much more debt and how it affects stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant. Suppose the expected free cash flow for Year 1 is $250,000 but it is expected to grow unevenly over the next 3 years: FCF2=$290,000 and FCF3=$320,000, after which it will grow at a constant rate of 7%. The expected interest expense at Year 1 is $80,000, but it is expected to grow over the next couple of years before the capital structure becomes constant: Interest expense at Year 2 will be $95,000, at Year 3 it will be $120,000, and it will grow at 7% thereafter. What is the estimated horizon unlevered…
Comet Company plans to build a new corporate headquarter facility in Plano, Texas. Accordingly, the company must consider various ways to finance this capital expansion. The Board of Directors believes that there are many advantages to issuing both debt and equity securities to obtain capital. The Board must consider the impact of issuing debt or equity securities on the company’s financial results as well as its profitability ratios and other metrics. The Board should also consider the expectations of investors related to the type of financing the company chooses. Options for financing the company’s expansion include issuing preferred stock, common stock, or bonds. Prepare a memo (in no more than 2 pages) discussing the advantages and disadvantages of debt and equity financing and recommend which option you believe is best to Comet Company’s Board of Directors. Include an analysis of your recommendation whereby you specifically address the effect of the financing choice on the…