Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Question
Chapter 6, Problem 19P
Summary Introduction
To calculate: The long-term financing interest rate to get the break-even point (BEP) between the short-term financing in 18 (a) and long-term financing.
Introduction:
Interest rate:
It is the rate at which a borrower takes a loan from a bank or other sources. It is calculated on the principal amount of the loan.
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Students have asked these similar questions
Which of the following statements regarding fixed-rate loans is true?
Group of answer choices
a. Fixed-rate loans are preferable if interest rates are expected to rise.
b. The cost of fixed-rate loans increases with an increase in the market interest rate.
c. The cost of fixed-rate loans decreases with a decrease in the market interest rate.
d. Fixed-rate loans are preferable if interest rates are expected to fall.
e. Fixed-rate loans have periodic adjustment dates, at which time the interest rate and monthly payment are adjusted as necessary.
How is the market interest rate in the short-term and long-term financial market affected under the Pure Expectations theory when suppliers and users of loanable funds expect that interest rates will decrease the next year?
From the standpoint of the borrower, is long-term or short-term credit riskier? Explain. Would it ever make sense to borrow on a short-term basis ifshort-term rates were above long-term rates?
Chapter 6 Solutions
Foundations of Financial Management
Ch. 6 - Prob. 1DQCh. 6 - Prob. 2DQCh. 6 - Prob. 3DQCh. 6 - Prob. 4DQCh. 6 - “The most appropriate financing pattern would be...Ch. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - Prob. 8DQCh. 6 - What are three theories for describing the shape...Ch. 6 - Since the mid-1960s, corporate liquidity has been...
Ch. 6 - Gary’s Pipe and Steel Company expects sales next...Ch. 6 - Prob. 2PCh. 6 - Tobin Supplies Company expects sales next year to...Ch. 6 - Antivirus Inc. expects its sales next year to be...Ch. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Boatler Used Cadillac Co. requires $850,000 in...Ch. 6 - Biochemical Corp. requires $550,000 in financing...Ch. 6 - Sauer Food Company has decided to buy a new...Ch. 6 - Assume that Hogan Surgical Instruments Co. has...Ch. 6 - Assume that Atlas Sporting Goods Inc. has $840,000...Ch. 6 - Colter Steel has $4,200,000 in assets. Short-term...Ch. 6 - Prob. 13PCh. 6 - Guardian Inc. is trying to develop an asset...Ch. 6 - Lear Inc. has $840,000 in current assets, $370,000...Ch. 6 - Using the expectations hypothesis theory for the...Ch. 6 - Using the expectations hypothesis theory for the...Ch. 6 - Carmen’s Beauty Salon has estimated monthly...Ch. 6 - Prob. 19PCh. 6 - Eastern Auto Parts Inc. has 15 percent of its...Ch. 6 - Bombs Away Video Games Corporation has forecasted...Ch. 6 - Esquire Products Inc. expects the following...
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Similar questions
- If short-term interest rates are lower than long-term rates, why might a borrower stillchoose to finance with long-term debt?arrow_forwardWhich is true of variable rate loans? A) the rate can only go up B) the interest rate can go up or down, depending upon the index it is tied to C) the interest rate can fall below 0 D) the rate can only go downarrow_forwardDefine the term break-even interest rate?arrow_forward
- What is maturity matching approach (for short-term financing)?arrow_forward9. Interest rates and decisions A.Which of the following best explains why a firm that needs to borrow money would borrow at long-term rates when short-terms rates are lower than long-term rates? The use of short-term financing over long-term financing for a long-term project will increase the risk of the firm. The firm’s interest payments will be the same whether it uses short-term or long-term financing, so it is essentially indifferent to which type of financing it uses. A firm will only borrow at short-term rates when the yield curve is downward-sloping. B. Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market. Scenario Impact on Yield Cost of Borrowing Money from Bond Markets ABC Real…arrow_forwardWhat are some of the risks involved in short-term vs. long-term financing ?arrow_forward
- The advantage of a "balloon payment" loan over a conventional loan repayment plan is: A. less total interest is paid B. the size of the payments is flexible C. the payments are smaller, except for the final one D. the interest rate is flexiblearrow_forwardHow would an increase in the interest rate effect the present value of an annuity problem (all other variables remain the same)arrow_forwardHow does the price level adjusted mortgage (PLAM) address the problem of uncertainty in inflationary expectations? What are some of the practical limitations in implementing a PLAM program?arrow_forward
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