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Kitty [74]
2 years ago
5

How should the acquisition of MPIS be financed, taking into account the issues of control, flexibility, income and risk? Cash fl

ows from Stock Offering (in Million Dollars) Proceeds from Stock offering $ 125.025 Annual Dividend Payments $ (7.50) Every year forever PV of payouts $ (125.000) NPV $ 0.025 Notes: In case they finance with debt, Winfield (the company) would be able to enjoy the tax shield as a result of tax deductible interest expense, hence their effective cost of debt will be 4.225%. However, when financed with stock, the new stockholders will be entitled to perpetuity of $7.5M in dividends. Working out the net present values of the two scenarios as shown in the tables above, Debt financing becomes a favorable option to stock since it yields a higher NPV.
Business
1 answer:
77julia77 [94]2 years ago
7 0

Answer:

Debt finance

Explanation:

advantages of the above are:

Lowers tax liability of the company

reduces board room squabbles that can arise from new stockholders

Based on investment appraisal techniques and on information given, a higher NPV portfolio will always be preferred by any investment manager except where other considerations are factored in the decision making.

Saves the cash outflow of $7.5mm dividend in perpetuity which can be deployed for other uses.

Once the debt is fully paid back, the interest (loan rental) becomes available to be deployed by the company. Usually, liquid(profitable) businesses prefer to borrow than using equity to finance acquisition. They trade on debt over equity.

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Answer:

Winners

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Losers

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Explanation:

The US Federal Government is a Winner because Inflation in general has the effect of eroding the value of money. Generally interest rates account for this but when it is Unexpected Inflation they don't. The US government is a winner because the amount of debt they now have in real terms have decreased.

Joy is also a winner for the same reason as the US government.

Karen lost out as a result of this because her Fixed Pension does not change with inflation which means that when inflation rates go up unexpectedly she will be able to buy less goods and services.

Herb's money will lose real value as a result of inflation because like Karen, Herb will be able to buy less goods and services when inflation rises.

3rd National Bank will also lose out because they made loans that would not have accounted for Unexpected inflation. The real value that they will be owed will therefore be less and they will suffer 'real' losses.

8 0
2 years ago
By examining relationships between items in the statement of cash flows, investors and creditors can do all of the following exc
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Answer:

determine cash investing and financing transactions made during the period.

Explanation:

When you analyze the statement of cash flows, you can determine and predict how will operating cash flows be in the future. E.g. a project is generating high amounts of cash, so you can predict that it will continue to do so for some time. But what you cannot predict or even compare is related to the financial and investing transactions that the company will make in the future. E.g. by analyzing a cash flow you cannot know if the company will decide to invest in other projects or will it decide to issue more stocks.

5 0
3 years ago
An appraiser prepared an appraisal report in April 2019. He testified in court regarding the value of the property in January 20
Salsk061 [2.6K]

Answer: April 2024

Explanation:

Based on the information given in the question, at a minimum, the appraiser must retain his workfile till April 2024.

It should be noted that appraisal records should be kept for at least a period of 5 years. In a situation whereby there is a report which is involved in the litigation, then such file must be maintained for a further two years. This is according to the Uniform Standards for Professional Appraisal Practice Record Keeping Rule.

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What is the primary reason that we have 3 branches
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