Fin 571 - Week 5

FIN 571

Long-Term Financing

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11/15/2010

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Chapter 17

B1.

A. Firms should use these scales to follow
Fixed Charge Coverage (FCC)  {3.40 - 4.30}
Cash Flow/Total Debt  {55 – 65}
Long-Term Debt/Total Capitalization  {25 – 30}

  b. There should be considerations regarding costs that is associated with issuance.
Also, lending rates and the capacity to be lent should be calculated also..

  c. Bixton’s CFO will need to consider credits when dealing with foreign tax.

Chapter 18

A10.

Formula: D1 = ADJ {POR {EPS1} - D0}+ D0

D1 = 0.75 {0.25 x $8.00 - $1.00} + $1.00  $1.75   D2 = 0.75 {0.25 x $8.00 - $1.75} + $1.75  $1.94
D3 = 0.75 {0.25 x $8.00 - $1.94} + $1.94  $1.985 D4 = 0.75 {0.25 x $8.00 - $1.98} + $1.98  $2.00
D5 = 0.75 {0.25 x $8.00 - $2.00} + $2.00  $2.00

B2.

a. Over a five-year period, the firm could achieve maximum overall payout ratio without triggering any securities issue.

Discretionary Cash Flow = {$50.00 + $70.00 + $60.00 + $20.00 + $15.00}  $215.00
Earnings = {$100.00 + $125.00 + $150.00 + $120.00 + $140.00}  $635.00
Maximum Payout Ratio = ({$215.00 / $635.00}  33.9%

b. Discretionary cash flow for years 1 through 5 would be:

D1 = $35.00 / 20  $1.75 D2 = $39.00 / 20  $1.95
D3 = $43.00 / 20  $2.15 D4 = $48.00 / 20  $2.40
D5 = $50.00 / 20  $2.50

Chapter 20

A2.

1. N = 40   R =     PV = -{$50.00 - $1.00} = -$49.00  
      PMT = 9% / 2 x $50.00 = $2.25  
      FV = $50.00  
      R = 4.61%
    APY = {1 + 0.0461}2 -1 = 9.43%

2. N = 20   R =     PV = -{$50.00 - $0.50} = -$49.50  
      PMT = 9.25% x $50 = $4.625  
      FV = $50.00  
      R = 9.36%
    APY = 9.36%

Second choice has a lower APY.  

Chapter 21

C2.

a. Debt that is secured is an lease, also interest   is attached to the debt. Any payment has the ability...