Answer:
a. Weighted average flotation cost
= FCE(E/V) + FCD(D/V)
= 7(100/170) + 4(70/170)
= 4.12 + 1.65
= 5.77%
V = E + D
V = 100 + 70 = 170
b. Flotation cost of debt financing
= 4% x $18 million
= $0.72 million
True cost of the building after taking flotation cost into account
= $18 million + $0.72
= $18.72
Explanation:
The weighted average flotation cost is the flotation cost of equity multiplied by the proportion of equity in the capital structure plus flotation cost of debt multiplied by proportion of debt in the capital structure. The total market value is 100 + 70 = 170. Since the debt-equity ratio is 0.7. Debt takes 70 while equity takes 100. The proportion of equity in the capital structure is 100/170 while the proportion of debt in the capital structure is 70/170.
Answer:
There's a list of important question to be do done:
1. A complete list of credit qualification of each member of the mortgage backed security (MBS) is needed: it is very useful because allow you to know the quality of the product, as in 2008 crisis the issuers of this kind of products put bad credit rate mortgages with good rate.
2. Who is the issuer of the MBS: it helps to determine the quality of the product, because studying the balance sheet is possible to know how healthy the company is
3. Is also important to know the issuer of the mortgage, it means Wich commercial Bank is issuing this kind of products
4-is the product been traded in stock exchange or it OTC ( over the counter). If it is traded OTC is lesser regulated than any stock exchange
Answer:
D) Project importance is enhanced by setting authority equal to that of functional departments.
Explanation:
A matrix organization is characterized by, multiple command system and overlapping of command, control and behavioral pattern.
Here, temporary project groups are created so as to handle short term projects. Personnel are drawn from functional department and their activities are controlled and coordinated by a project manager.
Once a project is completed, the structure is disbanded and the personnel return to their original departments i.e functional department.
During the project duration, a person is responsible and reports to two bosses, one being the project manager and secondly to the functional boss. Thus, under such a structure exists dual reporting.
Under matrix structure for project management, the project manager is not allowed to use resources exclusively for the project i.e like in project management. Rather, such a manager is required to share resources with the organization.
Answer:
they set up a committee to establish a procedure for making decisions that are in the best interests of the corporation.
Explanation:
The business judgment rule provides corporate officers and directors protection when they set up a committee to establish a procedure for making decisions that are in the best interests of the corporation.
Generally, the business judgment rule is a legal principle that primarily protect the board of directors from breach of fiduciary duty liability, in as much as the directors acted in good faith of the shareholders and ensuring a logical and well informed decision-making process.
The fiduciary duty liability of the corporate officers and directors of an organization to its shareholders are duty of loyalty, care, prudence, which implies, they'll always make the interest of the corporation and its shareholders a high level priority.
Hence, the business judgment rule is aimed at protecting and mitigating the risks faced by corporate officers and directors in the event of litigations because it is assumed that they're acting in the interest or favor of the corporation and its shareholders.
Answer:
less desirable to other investors
Explanation:
<u>Given</u>: Current fixed coupon rate 5%
Market rate of interest 5%
New Market Rate of Interest 6%
Value of a bond is inversely related to economy interest rate or the yield to maturity (YTM). Value of a bond is expressed by the following equation:
wherein, C = Coupon rate of interest
YTM = Market Rate of Interest or interest rate in the economy or investor's expectation
n= Years to maturity
RV = Redemption value
In the given case, C = YTM i.e par value bond. When ytm rises to 6%, the value of the bond shall fall making such a bond less attractive since it represents lower coupon payments than investor expectations.
Thus, now the bond would be less desirable to other investors.
