Question

1. The company uses Goldman Sachs for its investment banker and
Peter Fields, a Goldman Sachs managing director, has suggested that
McCormick consider on of two choices for financing. There is an
innovative hedge fund group that will loan $350 million to Mc
Cormick for 10 years in a zero interest bond. At the end, McCormick
will owe $550 million. The fee to Goldman will be paid by the hedge
fund. **Use the PV function to calculate the
present value of the $350 million zero interest bond using a rate
of 4%. Divide the rate by 2 and use 20 periods to compare to the
standard bond. Make the $550 a positive number to see the cost
today as a negative number. Compare to the $350 million that the
company will get in cash if it agrees to this deal. Your answer
should be a cost or negative number.**

2. The alternative is a traditional 20 year bond that will pay
4% interest with semi annual interest payments of 2% of the amount
owed. The principal ($350 million) will be due at the end of 20
years. The bond will be sold to mutual funds and life insurance
companies. If Mc Cormick takes this alternative, it will owe
Goldman Sachs a fee of 9/10 of 1% of the $350 million. This fee
will be deducted from the initial proceeds of the bond sale.
McCormick CFO would like to know which financing will cost less. To
evaluate financing, Mc Cormick uses the current cost of debt which
is 4% as the annual discount rate. **Use the PV function.
Make the $350 principal payment in year 20 a positive number to
show it as a cost today. Calculate the Goldman fee as a cost today
(time zero). Negative numbers are costs today. Use 4% divided by 2
(2%) as the semi annual discount rate. Use 40 periods.**

**3.** Next we will calculate the effective
interest rate for each alternative using the RATE function in
Excel. For the 20 year loan, we will use
semi-annual compounding as interest is paid every 6 months. Enter
2% of the principal (minus 2% x $350) into the PMT box. Since there
are 40 interest payments, enter 40 in the NPER box. Put the value
at maturity as minus $350 into the FV box. Put the amount of cash
that McCormick receives after paying the Goldman Sachs fee into the
PV box ($350 minus the fee). Hit enter and find a semi annual fee
slightly above 2% Show 2 decimal places. Multiply by 2 to go back
to an annual rate. **What is your answer in % for the annual
rate?**

4. Next use the RATE function for the zero Interest Loan. Since
it is a 10 lyear oan and we want to make it comparable, we will set
NPER equal to 20. We enter minus $550 in the FV box and $350 in the
PV box. The functions will calculate a semi annual rate. Multiply
by 2 to get the annual rate. **What is your answer in % for
the annual rate?**

5, Now that you have two calculations for each loan,
**which is less cost? Which would you recommend and
why?**

**6.** We learned that one way to measure the
financial risk is to calculate the Times Interest Earned ratio. We
define it as EBIT / Interest Expense. For this question, we will
ignore non operating Income. For Exxon Mobil, Choice Hotels,
Marriott, and McCormick and Company, **what is the times
interest earned for 2017?** For ease, there is a table below
with the EBIT and Interest Expense for each company. I excluded the
one time unusual gain of $668 million* for Marriott.

7. Times interest earned should be above 4.5 . If McCormick adds
$14 million per year to its interest expense, and nothing else
changes from the 2017 numbers, **What will be the new Times
Interest Earned?**

**8.** If McCormick adds the year 1 net income and
the year 1 tax amount that were calculated in the Q-2 table on the
investing tab to EBIT, **what will be forecast the Times
Interest Earned?**

Answer #1

1)

A | B | C | D | E | F | G | H | I | J | K |

2 | ||||||||||

3 | Required rate of return | 4% | ||||||||

4 | Period | 10 | Years | |||||||

5 | ||||||||||

6 | Semi-annual rate (r) | 2% | =D3/2 | |||||||

7 | Semi-annual Period (n) | 20 | =D4*2 | |||||||

8 | ||||||||||

9 | Loan Amount borrowed | $350 | million | |||||||

10 | FV of Loan | $550 | million | |||||||

11 | ||||||||||

12 | RATE | 2.00% | =D6 | |||||||

13 | NPER | 20 | =D7 | |||||||

14 | PMT | $0.00 | ||||||||

15 | FV | $550 | ||||||||

16 | Present value of loan | ($370.13) | =PV(D12,D13,D14,D15) | |||||||

17 | ||||||||||

18 |
Hence present value of loan is |
($370.13) |
||||||||

19 | ||||||||||

20 | Thus the actual cash received should be 370.13 million whereas the amount received is $350 million. | |||||||||

21 |

Your company plans to borrow $14 million for 12
months, and your banker gives you a
stated rate of 20 percent interest
Calculate the elective rate of interest for the following types of
loans.
a. Simple 20 percent interest with a 8 percent compensating
balance. (Use 365 days o
year Round the final answer to 2 decimal places.)
Effective rate
b. Discounted interest. (Use 365 days a year. Round the final
answer to 2 decimal
places-)
Effective rate
c. An...

$4 million Bank loan due in 15 years at 8% pa with quarterly
compounding; and 8,000 semi-annual Bonds with 9.36% quoted coupon
rate and 10 years to maturity. The face value of these bonds is
$1,000 and current trading price is $1,250.
i. EAR of Bond is (1+0.0299)2 â€“ 1 = 6.06% (20 n, -1250 PV, 46.80
PMT, 1000 FV => CPT I/Y)
can you give me how to use the financial calculator to get
current return?? i need a...

A company is planning an investment of 5,000,000
today.
The investment is depreciated on a straight-line basis over the
life of 5 years and the residual value at the end of the project is
assumed to be 500,000.
The investment will generate the following income over the next
five years: 4,000,000, 4,500,000, 5,000,000, 5,500,000 and
6,000,000.
Payable operating expenses (operating expenses excluding
depreciation) will amount to 60% of the income in the individual
year.
The annual working capital requirement is...

MicroEcon chapter 7&8
1-3, 10-12.
PLEASE EXPLAIN WHYY. thanks
Use the table below to answer the next 3 questions
Units of Output
Total Fixed Cost
Total Variable Cost
1
$1000
$200
2
450
3
800
4
1350
5
1950
10. Given the cost schedule above, the ATC of producing 4 units
is
(a)
$550
(c) $1000
(b)
$588
(d) $2350
11. Given the cost schedule above, the TC of producing 3 units
of output is
(a)
$800
(c) $1800
(b)
$1000 ...

I will be happy if you use excel and show me the
calculation process. Please complete in your own style. If u get
any info missing or any sequence problem for the question then
adjust it or take assumption for it. I hope all info there but
still if i miss then do it in your own style. Thanks
Roster Pte Ltd issued 100 million of 11-year bonds with a 9.5%
coupon payable annually. This bond was issued a year...

1*The bonds will be sold for a premium when the market
interest rate exceeds its established rate
True
False
2 * The estimated cost of the guarantee should not be
reported as a liability, only an explanatory note that makes the
information public is required
True
False
3 * Just like the social security tax there is a maximum
wage base for the Medicare tax part of the FICA that is 3 times
more than the social security tax?
True...

Bird's Eye Treehouses, Inc., a Kentucky company, has determined
that a majority of its customers are located in the Pennsylvania
area. It therefore is considering using a lockbox system offered by
a bank located in Pittsburgh. The bank has estimated that use of
the system will reduce collection time by 2 days.
Average number of payments per day
770
Average value of payment
$
720
Variable lockbox fee (per transaction)
$
.20
Annual interest rate on money market securities...

Bird's Eye Treehouses, Inc., a Kentucky company, has determined
that a majority of its customers are located in the Pennsylvania
area. Therefore, it is considering using a lockbox system offered
by a bank located in Pittsburgh. The bank has estimated that use of
the system will reduce collection time by 2 days.
Average number of payments per day
900
Average value of payment
$
850
Variable lockbox fee (per transaction)
$
.20
Annual interest rate on money market
securities...

Threes Company is evaluating a new project. Mr. Jack Tripper,
Chief Financial Officer, has received pro forma income statements
for the project from the Controllerâ€™s office and wants to know
whether the new project will increase shareholders' wealth.
The estimated initial project cost is $25 million to undertake
this six year project. The project is expected to generate the
following cash flows for the next six years: $5.2 million in year
1; $6.6 million in year 2, $7.6 million in...

On the last day of its fiscal year ending December 31, 2018, the
Sedgwick & Reams (S&R) Glass Company completed two
financing arrangements. The funds provided by these initiatives
will allow the company to expand its operations. (FV of $1, PV of
$1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use
appropriate factor(s) from the tables provided.)
1. S&R issued 9% stated rate bonds with a face amount of $100
million. The bonds mature...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 12 minutes ago

asked 20 minutes ago

asked 24 minutes ago

asked 25 minutes ago

asked 26 minutes ago

asked 26 minutes ago

asked 31 minutes ago

asked 31 minutes ago

asked 32 minutes ago

asked 53 minutes ago

asked 1 hour ago

asked 1 hour ago