Ace - AI Tutor
Ask Our Educators
Textbooks
My Library
Flashcards
Scribe - AI Notes
Notes & Exams
Download App
Aaliyah Marie

Aaliyah M.

Divider

Questions asked

INSTANT ANSWER

Small research and development intensive start-ups with revenues in the distant future should have optimal leverage ratios that are below 30%. True or false and why?

View Answer
 divider
INSTANT ANSWER

Companies can reduce the risk of financial distress by issuing debt and using the proceeds of the debt issuance to repurchase stock. True or false and why?

View Answer
 divider
INSTANT ANSWER

an investment requires 14,000 today and produces the first cash flow of 700 in 3 years (year 3). Cash flow is expected to grow at 6% a year after year 3 until eternity. What is the NPV of this investment if the discount rate is 9%

View Answer
 divider
INSTANT ANSWER

A US company expects to make a payment of 3.5 million Euros in June, 2017. We are in October, 2016. Suppose the US company wishes to mitigate the exchange rate risk using domestic debt, foreign debt, and liquidity. What is the appropriate financial transaction? 1 point The US company needs to buy Euros today using dollars and hold cash in Euros until June 2017. The US company needs to borrow in Euros, convert the proceeds into dollars, and hold dollars until 2017.

View Answer
 divider
INSTANT ANSWER

Which of the following is true regarding futures? 1 point Buying or selling futures contracts on pounds is economically very similar to buying and selling forward contracts on pounds. Futures contracts trade on an exchange, and thus, a US company that buys pound futures does not really know who is the counterparty in the transaction. Interest rate futures are likely to be imperfect hedges for the interest rate risk that companies face. All of above are true.

View Answer
 divider
INSTANT ANSWER

Suppose we are in December 30, 2014, and a German company expects to make a payment of 1,700 million dollars to a US supplier one year from now. Which of the following best describes the position that the German company should take in currency forwards if it wants to hedge currency risk? Todays high is 1.2187, todays low is 1.2122 and a year from now it’s 1.2230 The German company should sell dollars today. The German company should sell dollars in the forward market. The German company should buy dollars in the forward market

View Answer
 divider
ANSWERED

Jennifer Stoner verified

Numerade educator

Which of the following is not correct? Hedging makes sense for our company because it allows us to eliminate risks that we do not wish to be exposed to, such as currency risk. A CFO of a company that uses oil as an input believes that oil prices will decrease. It would be wrong for the CFO to try to profit from this expectation by shorting oil futures contracts. The benefit of hedging input price risks for a company should increase if the company is highly levered and close to financial distress. Our company chooses not to hedge foreign currency risk because we believe the dollar will appreciate and this appreciation will increase our profits.

View Answer
 divider
INSTANT ANSWER

A company has estimated that issuing a senior, unsecured bond in the market will require the company to pay a 7% interest rate to investors to compensate for the risk of default. The company is rated BB-. The company is also considering borrowing from a bank instead of issuing a bond. Suppose that the recovery rate on the bank loan increases to 80% (as opposed to 40% with the unsecured bond). In addition, suppose that the bank demands the same expected return (4.65%) that bondholders demand. The interest rate on the bank loan will be

View Answer
 divider
INSTANT ANSWER

A company is considering whether it is worth increasing its leverage ratio from 20% to 35%. The company’s interest coverage will likely become close to 2, so the company’s rating could become lower than BBB-. Which of the following options is not correct? 1 point The loss of an investment-grade rating can negatively impact the firm’s ability to raise debt in the future. The possibility of a rating downgrade is an important factor to consider before issuing new debt. The company is likely to pay a significantly higher interest rate on the new debt that it is planning to issue.

View Answer
 divider
INSTANT ANSWER

For questions 1 and 2, consider a bond that has a yield-to-maturity of 4% and a credit rating of BBB. Assume that the probability that the company will default on the bond during next year is 0.5% and that investors’ recovery rate upon default is 40%. Suppose that the probability of default on this bond increases to 0.75% a year. Which of the following options is correct ? 1 point The yield-to-maturity decreases. The recovery rate will probably decrease since the bond became riskier.

View Answer
 divider