A public company is planning to raise 3.2 million dollars by using financial instruments for a...

A public company is planning to raise 3.2 million dollars by using financial instruments

for a seven-month project. Assume you work as a financial advisor, which instrument you

would suggest the company to issue or purchase? Is the instrument you suggest a money

market instrument or capital market instrument? Explain the reason(s).

Discuss at least two reasons (differences) why the instrument you suggested in part (a)

may trade at a different yield to a 10-year treasury bond.

Expert Solution

Since the company is the public limited, the company can issue the short term bonds for the purpose of the raising of the finances required for the project

It will not dilute the ownership of the company and the legal compliances in the bond market is quite less as the company has to honor the interest charge as and when it is due.

The interest rate charge on the bond will be less than the rate of the working capital loan from the bank or the NBFc as the company can get the benefit of the credit rating.

The intrument is a capital market instrument though the period of it will be low

Reason from the difference from the 10 year treasury bond

1. The bond issued by the company will not be the risk free and thus the benefit of the risk premium can be enjoyed by the buyer.

2. The prices of the bond in the market will change which will benefit the buyer in the form of getting the long and the short position

jeff jeffy answered 2 years ago

1.a. A public company is planning to raise 3.2 million dollars by using financial instruments for...

1.a. A public company is planning to raise 3.2 million dollars by using financial instruments for a seven-month project. Assume you work as a financial advisor, which instrument you would suggest the company to issue or purchase? Is the instrument you suggest a money market instrument or capital market instrument? Explain the reason(s). b. Discuss at least two reasons (differences) why the instrument you suggested in part (a) may trade at a different yield to a 10-year treasury bond 2.What...

Suppose your company is planning go on public to raise capital for business project. The underwriting...

Suppose your company is planning go on public to raise capital for business project. The underwriting discount is $1.50 and there is a legal fee of $250,000. If the offering price of the share is set at $21.50 per share, how many shares does the company have to issue to raise $80 million? Select one: a. 4 012 500 b. 6 696 429 c. 6 591 337 d. 5 789 452

A firm needs to raise 150 million dollars for the project. What are the firm's options...

A firm needs to raise 150 million dollars for the project. What are the firm's options of raising funds to finance this large capital project.

Discuss implications of financial planning on public procurement.

A company has expected free cash flows of $1.45 million, $2.93 million, and $3.2 million in...

A company has expected free cash flows of $1.45 million, $2.93 million, and $3.2 million in the next three years. Beginning in Year 4, the expected cash flows will grow (or decrease) by -5% in perpetuity. Measure the value of this company as of today using both a 10% and 12% discount rate.

TTC is planning to raise $3.25 million for three years at an interest rate of 7.35...

TTC is planning to raise $3.25 million for three years at an interest rate of 7.35 percent to finance their expansion. The Alban County Board of Commissioners has just offered the firm the $3.25 million they need at 5.25 percent if the firm builds in Alban County, pays the interest annually, and repays the principal at the end of three years. What is the net present value of the loan to TTC if the firm's tax rate is 21 percent...

Gross Profit Percentage The following financial data is from Hi-Tech Instruments' financial statements (thousands of dollars,...

Gross Profit Percentage The following financial data is from Hi-Tech Instruments' financial statements (thousands of dollars, except earnings per share.) 2016 Sales revenue $209,500 Cost of goods sold 125,500 Net income 8,300 Dividends 2,600 Earnings per share 4.15 Hi-Tech Instruments, Inc. Balance Sheet (Thousands of Dollars) Dec. 31, 2016 Dec. 31, 2015 Assets Cash $18,300 $18,000 Accounts receivable (net) 46,000 41,000 Inventory 39,500 43,700 Total current assets 103,800 102,700 Plant assets (net) 52,600 50,500 Other assets 15,600 13,800 Total assets...

A Company is expected to earn $19.84 million next year. There are 3.2 million shares outstanding...

A Company is expected to earn $19.84 million next year. There are 3.2 million shares outstanding and the company uses a dividend payout ratio of 40 percent. The required rate of return for companies like Blue is 9 percent. The current share price of Blue is $75. What are the expected earnings per share? What are the expected dividends per share? What is the dividend growth rate expected ? What is the present value of growth opportunities for this firm?

Mahomes Company needs to raise $275 million to start a new project and will raise the...

Mahomes Company needs to raise $275 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 10 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stock, 4 percent, and for new debt, 2 percent. What is the true initial cost...

Cully Company needs to raise $23 million to start a new project and will raise the...

Cully Company needs to raise $23 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 10 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 8 percent, for new preferred stock, 6 percent, and for new debt, 4 percent. What is the true initial cost...

Question