Question

True/False All else the same, if a company’s interest rate on its borrowings goes down, its...

True/False

All else the same, if a company’s interest rate on its borrowings goes down, its coverage ratio will go up.

Banks receive interest on their customer deposits.

Banks are required to pay interest on all deposits.

Certificates of Deposit are a type of time deposit.

Certificates of Deposit are a type of demand deposit

Corporate profits tax is applied to a corporation’s profits after dividends have been subtracted.

You can buy a company’s stock when the company issues shares or when an existing investor sells his/her shares.

The purpose of capital requirements is to make sure that banks are earning a minimum return on equity capital.

The purpose of capital requirements is to make sure that banks can withstand defaults by their (borrower) customers.

Demand deposits are more liquid than cash.

ABC Company has cash on its balance sheet. It decides to use the cash to purchase equipment. Compared to the original situation, ABC’s leverage ratio is higher.

ABC Company has cash on its balance sheet. It decides to use the cash to purchase equipment. Compared to the original situation, ABC’s leverage ratio is lower.

Banks can own bonds but cannot issue them.

When you deposit your salary into your checking account, you are lending money to the bank.

An underwriter is the corporation’s secretary. He/she signs his/her name on all corporate documents directly under the president’s signature.

Compensating balances refer to the compensation a bank pays to its corporate clients for holding deposits at the bank.

The S.E.C. sets minimum capital requirements for all public corporations.

Banks only make loans; they do not purchase securities.

If a company’s price-per-share increases, its book value goes up.

“Double taxation” refers to the I.R.S. first taxing a corporation’s revenue and then its profits.

A Eurodollar deposit involves depositing euros in an offshore bank and the bank creating a dollar deposit in return.

A bank is deficient in capital by $25 MM. It can cure the deficiency by borrowing $25 million in the inter-bank market and holding the funds in cash.

If a company borrows $1MM (from a bank) at a rate of 12% for one month beginning today, it will pay $10,000 in interest.

A trucking company plans to buy 100,000 gallons of diesel fuel in January. It can remove its risk by entering today into a (physical delivery) forward contract with a counterparty to buy the fuel at $2.50/gallon.

A trucking company plans to buy 100,000 gallons of diesel fuel in January. It can remove its risk by entering today into a (cash settled) forward contract at $2.50/gallon, whereby it receives from the counterparty the difference between 2.50 and the spot price in January (x100,000) if the spot price is above 2.50, and pays the difference if it is below 2.50. x

Toys-4-U corporation has $5 million in assets and $1 million in debt. Its leverage ratio is 1.25.

Toys-4-U corporation has $5 million in assets and $1 million in debt. The ratio of its debt to equity is .25.

Suppose two counterparties enter into a forward contract to buy/sell a stock. All the specifics of the agreement are entered into the contract except the purchase/sale price.

A company begins the week with a leverage ratio of 1.25. During the week it issues additional (common) shares and uses the funds to purchase equipment (with no other changes). Its leverage ratio at the end of the week remains 1.25. x

A company begins the week with a leverage ratio of 1.25. During the week it issues additional (common) shares and uses the funds to purchase equipment (with no other changes). Its leverage ratio at the end of the week is greater than 1.25.

A company begins the week with a book value-per-share of $25. During the week it issues additional (common) shares at a price-per-share of $21. Compared to its (total) book value as of the beginning of the week, its new (total) book value is lower.

A company begins the week with a book value-per-share of $25. During the week it issues additional (common) shares at a price-per-share of $21. Compared to its (total) book value as of the beginning of the week, its new (total) book value is higher.

The further down the “corporate cash waterfall” you stand, the more risk you face of not receiving the money you expect or are promised.

XYZ company has a book value of $1billion and it has ten million shares outstanding, of which you own one hundred. The company splits each share into two. The total market value of your shares is now higher. x

XYZ company has a book value of $1billion and it has ten million shares outstanding, of which you own one hundred. The company splits each share into two. The total book value of your shares is now higher. x

Homework Answers

Answer #1

All else the same, if a company’s interest rate on its borrowings goes down, its coverage ratio will go up. - TRUE.
Since interest coverage ratio= cash flow from operations/ interest expense, as interest expense goes down, coverage ratio will increase.

Banks receive interest on their customer deposits.- FALSE. Banks pays interest on customer deposits not receive.

Banks are required to pay interest on all deposits.- FALSE. an example is current account in which Banks do not pay interest.

Certificates of Deposit are a type of time deposit.- TRUE. These are more or less interchangeable words.

I can only answer 4 subparts. Please do rate me and mention doubts, if any, in the comments section.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
These statements are true of false? Explain. 1) In DCF valuation, a company can increase its...
These statements are true of false? Explain. 1) In DCF valuation, a company can increase its return on equity (ROE) by increasing its leverage ratio if and only if its return on capital (ROC) exceeds its after-tax cost of debt (rd x (1 - Tc)). (Assume all other inputs are fixed.) 2) In the context of the dividend discount model (DDM), a company can always increase its intrinsic equity value by increasing its dividend payout ratio if and only if...
Company A has €150m in cash and its other (operating) assets have a €520m book value....
Company A has €150m in cash and its other (operating) assets have a €520m book value. It has 100 million shares trading at €9 and no debt. The cash is in bank accounts and government bonds yielding in total a very safe annual return of 2%, i.e., cash is forecast to generate earnings of €3m by yearend. The operating assets are forecast to generate earnings of €52m by yearend. An activist investor argues that all that cash is depressing the...
Bynum and Crumpton, a small jewelry manufacturer, has been successful and has enjoyed a positive growth...
Bynum and Crumpton, a small jewelry manufacturer, has been successful and has enjoyed a positive growth trend. Now B&C is planning to go public with an issue of common stock, and it faces the problem of setting an appropriate price for the stock. The company and its investment banks believe that the proper procedure is to conduct a valuation and select several similar firms with publicly traded common stock and to make relevant comparisons. Several jewelry manufacturers arc reasonably similar...
Pursuing Myron Bronco: Wouldn’t it be good?: It was right at the beginning of 2019. Myron...
Pursuing Myron Bronco: Wouldn’t it be good?: It was right at the beginning of 2019. Myron Bronco Incorporation (MB) was a medium-sized company listed in a share market. Largely owned by a traditional and financially conversative elite family, the company operated in a lower-risk and mildly-competitive industry. With thin trading of its shares in the stock exchange, the family has been considerably successful in controlling major decisions/directions made by the company. The family-owners of the company also take pride with...
Please answer all 9 questions with explanation. Thank you On May 8, 1984, Hannah Eisenstat graduated...
Please answer all 9 questions with explanation. Thank you On May 8, 1984, Hannah Eisenstat graduated from Louisiana State University. She set to work opening a coffee shop in Baton Rouge called HannaH and found a perfect location in a new development. Using a $50,000 inheritance to finance the venture together with her own sweat equity, she started the business on August 1, 1984 as a sole proprietorship. The shop was profitable in the first year. Hannah found, however, that...
Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at...
Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, number of shares are shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2018 (In Thousands) Cash $212,520 Accounts payable $182,160 Receivables 516,120 Other current liabilities 136,620 Inventories 425,040 Notes payable to bank 182,160    Total current assets $1,153,680    Total current liabilities $500,940 Long-term...
Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at...
Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, number of shares are shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2019 (In Thousands) Cash $ 93,800 Accounts payable $ 150,080 Receivables 234,500 Other current liabilities 93,800 Inventories 206,360 Notes payable to bank 93,800    Total current assets $ 534,660    Total current...
eBook Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced...
eBook Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, number of shares are shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2019 (In Thousands) Cash $ 249,900 Accounts payable $ 249,900 Receivables 678,300 Other current liabilities 232,050 Inventories 428,400 Notes payable to bank 89,250    Total current assets $ 1,356,600    Total...
CRITICAL THINKING QUESTION Please read the case study below on the differences between equity and liabilities....
CRITICAL THINKING QUESTION Please read the case study below on the differences between equity and liabilities. Decide whether the Class A common (ie. ordinary) shares may be disclosed as part of shareholders’ equity. Explain the application of relevant passages from AASB 132 and the Conceptual Framework to the Class A Common Shares, making specific connections between wording in in the standards and framework with the features of the shares. Using the AREA framework, do you agree or disagree with the...
please show work thank you!!!!!!! 1. Bank of RGV is a successful regional bank with common...
please show work thank you!!!!!!! 1. Bank of RGV is a successful regional bank with common equity share outstanding 1 million. It pays $10 dividend each year and expected to grow 5% in period 1. The appropriate discount rate to reflect shareholder risk is 10%. Answer below question using below data pertains to Bank of RGV: Below numbers are in 1000’s. Balance sheet                                                      Income statement Cash                                                   $100                Interest income                                       $400                                        Securities investments                         $600                interest expense...