PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 19, Problem 20PS
Summary Introduction

To determine: The amount of debt

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Times-Interest-Earned Ratio The Morrit Corporation has $570,000 of debt outstanding, and it pays an interest rate of 8% annually. Morrit's annual sales are $3 million, its average tax rate is 25%, and its net profit margin on sales is 6%. If the company does not maintain a TIE ratio of at least 5 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morrit's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.
Reed plc is considering how to improve its debtor collection policy. The following information is available.  Current Credit Sales: £912,000 Average debtor collection period (days): 94 days Wishing to introduce a new policy of payment within (days): 60 days  Anticipated reduction in sales per year: £40,000 Increased collection costs per yer: £2,000 Short-term cost of borrowing (%): 30% Sales contribution to profit: 20% Required  What will be the net benefit if Reed successfully enforces the new policy? When a corporation raises finance, there are two options: long-term debt finance (bank loan or corporate bonds) and equity finance (ordinary shares). The two approaches have fundamental consequences to the corporation. What are the main differences between the two approaches?
[EXCEL] Finance balance sheet: KneeMan Markup Company has total debt obligations with book and market values equal to $30 million and $28 million, respectively. It also has total equity with book and market values equal to $20 million and $70 million, respectively. If you were going to buy all of the assets of KneeMan Markup today, how much should you be willing to pay? please use excel
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