Watch the YouTube video: The $3.7 Trillion Corporate Debt Question Or per link below https://youtu.be/SqGYk0nmcCA Provide a brief discussion on how corporate debt is rated. What does a higher letter grade mean? What does a lower letter grade mean? Question 2 What is the concern about BBB rated debts if the economy takes a downturn? Explain. Question 3 What is the key metric for how these ratings are assigned? Explain. Question 4 What are the other factors that play a role in assigning ratings as identified by Moody’s and S
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Question 1
Watch the YouTube video: The $3.7 Trillion Corporate Debt Question
Or per link below
https://youtu.be/SqGYk0nmcCA
Provide a brief discussion on how corporate debt is rated.
What does a higher letter grade mean?
What does a lower letter grade mean?
Question 2
What is the concern about BBB rated debts if the economy takes a downturn? Explain.
Question 3
What is the key metric for how these ratings are assigned? Explain.
Question 4
What are the other factors that play a role in assigning ratings as identified by Moody’s and S&P.
Step by step
Solved in 2 steps
- Please do your own work, don't copy from the internet Q5) Calculate the aftertax cost of debt under each of the following conditions: Yield Corporate Tax Rate a. 8.0% 18% b. 12.0% 34% c. 10.6% 15% Solution: Kd = Yield (1 – T) Yield (1 – T) Yield (1 – T) 8.0% (1 – .18) 12.0% (1 – .34)K2. Unstable Variable Material Company owns bonds from a friendly company called The Followers. They classified these as bonds "available for sale" or AFS. During 2023, Unstable hit pay dirt, and these bonds increased by $4 million. They also received interest of $3 million. Given all these numbers, what's the bottom line effect on Unstable's 2023 financial statements?QUESTION #3 please solve the following parts as its a continuation a) Populate the following “T-accounts” with the following data $100 million in mortgage-backed securities (MBS) $200 million demand deposits $20 million in reserves held by banks $100 million in Treasury securities held by banks $50 million in Treasury securities held by the Fed $5 million in overnight borrowing by banks from the Fed b) Suppose that there is widespread default in mortgages. The market has frozen and the MBS are now worth nothing. The Fed has decided to prop up the banking sector by purchasing $80mil of MBS (non-traditional OMOs). Show all respective changes on the balance sheets and highlight in yellow. Households Banks Federal Reserve Firms ___A_______L___ ___A_______L___ ___A_____L___ ___A_____L___
- Question 1. WACC Cost of Debt After-tax cost of debt 4.90% Cost of Equity Treasury Bond Rate (risk free rate) 5% Beta 0.48 Risk premium 7% Years 2014 2015 2016 2017 Capital Structure Debt 22% 25% 28% 27% Equity 78% 75% 72% 73% Please calculate following for each of the year from 2014 to 2017 Cost of Debt (before tax) Cost of Equity WACC (Weighted Average Cost of Capital)1 views You have the following initial information on CMR Co. on which to base your calculations and discussion for questions 1) and 2):• Current long-term and target debt-equity ratio = 1:4• Corporate tax rate = 30%• Expected Inflation = 1.75%• Equity beta = 1.6385• Debt beta = 0.2055• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) = 2.15% 1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate a potential investment in a new project. The proposed project requires an initial outlay of $7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cash flow of $575 million in perpetuity following its completion. It has the same business risk as CMR Co.’s existing activities and will be funded using the firm’s current target D:E ratio. a) What is the nominal weighted-average cost of capital (WACC) for this project?b) As CFO, do you recommend investment in this project? Justify your answer (numerically). 2) Assume now a…a. What percentage of the firm's assets does the firm finance using debt (liabilities)? b. If Campbell were to purchase a new warehouse for $1.1 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? Question content area bottom Part 1 a. What percentage of the firm's assets does the firm finance using debt (liabilities)? The fraction of the firm's assets that the firm finances using debt is 27.827.8%. (Round to one decimal place.) Part 2 b. If Campbell were to purchase a new warehouse for $1.1 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? The new debt ratio will be enter your response here%. (Round to one decimal place.)
- 1. A bank has deposits of 100 billion and leverage ratio of 12. Assume that it has a reserve ratio of 20 percent, and it holds no excess reserves. Further suppose that bank capital is $36 billion. Lump all assets besides ‘reserves’ into a category labeled ‘other’.a) Write down a t-account for the bank. Briefly explain how you come up with any number.b) Suppose the new legislation requires banks to have a reserve ratio of at least 30 percent. The bank meets this requirement by issuing new debt. There is no change in the amount of deposits. Show the new t-account. What is the new leverage ratio? (Please answer the entire question)Exercise 4 (it's only one question)In 2016 the company FinTech.Inc had a capital structure which is as follows: Capital structure Book value Long-term bank debt $2,000,000 Bond loan $5,000,000 Preferred shares NV=$70 $7,000,000 Ordinary actions 200,000 shares $10,000,000 Non-distributed profit $3,000,000 The annual interest rate of the bank debt is 6%, the company issued its bond loan by offering a nominal annual coupon rate pf 8%, the maturity date is scheduled in 15 years, the bond currently being exchanged on the bond market at a price of $1,260, the issuance of a new bond loan at the market price with a 15 years maturity will gnerate deductible issue costs of 3%of the nominal value of the bond.The common share is currently trading on the stock market at a price of $65, an issue of shares at market price will cost 2% of the sale price in issue costs which are tax deductible, the next dividend is estimated at $2.2 the dividend growth rate is 5%, the company only…I only need answer to the second question. I was asked to provide question 1 so I provided both question but I only need the answer to question or part 2. You have the following initial information on Financeur Co. on which to base your calculationsand discussion for questions 1) and 2):• Current long-term and target debt-equity ratio (D:E) = 1:3• Corporate tax rate (TC) = 30%• Expected Inflation = 1.55%• Equity beta (E) = 1.6325• Debt beta (D) = 0.203• Expected market premium (rM – rF) = 6.00%• Risk-free rate (rF) =2.05%1) The CEO of Financeur Co., for which you are CFO, has requested that you evaluate apotential investment in a new project. The proposed project requires an initial outlay of$7.25 billion. Once completed (1 year from initial outlay) it will provide a real net cashflow of $556 million in perpetuity following its completion. It has the same business riskas Financeur Co.’s existing activities and will be funded using the firm’s current target D:Eratio.a) What is the…
- Dollar General (DG) is choosing between financing itself with only equity or with debt and equity. Regardless of how it finances itself, the EBIT for DG will be $545.63 million. If DG does use debt, the interest expense will be $57.85 million. If DG‘s corporate tax rate is 0.30, how much will DG pay (in millions) in total to ALL investors if it uses both debt and equity? Instruction: Type ONLY your numerical answer in the unit of millionsDebt To Equity Data: 2018: 0.27x 2019: 0.23x 2020: 0.21x 2021: 0.18x 2022: 0.17x Question: which of the following transactions and events would result in a deterioration in Debt to Equity in year 2021? 1) a share buy-back 2) receiving cash for unearned sales revenue 3) the purchase of machinery financed entirely by a reducing-balance bank loan 4) A and B only 5) A and C only 6) B and C only 7) All of the above 8) None of the aboveQ1 (a) Explain FOUR (4) reasons that influence the changes which make debt securityyields vary. (b) If a government bond is expected to mature in two years and has a current priceof RM950, calculate the bond's interest rate/yield if it has a par value of RM1,000and a promised coupon payment rate of 10%.(c) From part (b) above, illustrate how the bond price/value if the interest rate/yieldmoves up (increase).
