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Advantages of convertible securities:
- Provide lower cost of debt
- No immediate dilution of ownership and EPS
- Provides equity finance on conversion
- Interest charges are tax allowable hence tax shield.
Kavungya answered the question on December 14, 2021 at 08:18
- List and explain five factors that should be taken into account by a businessman in making the choice between financing by short-term and long-term sources.(Solved)
List and explain five factors that should be taken into account by a businessman in making the choice between financing by short-term and long-term sources.
Date posted: December 14, 2021. Answers (1)
- Lynx Services Ltd., a debt collection agency, has estimated that the standard deviation of its daily net cash flow is Sh.22,750. The company pays Sh.120...(Solved)
Lynx Services Ltd., a debt collection agency, has estimated that the standard deviation of its daily net cash flow is Sh.22,750. The company pays Sh.120 in transaction cost every time it transfers funds into and out of the money market.
The rate of interest in the money market is 9.465%. The company uses the Miller-Orr Model to set its target cash balance. The minimum cash balance has been set at Sh.87,500.
Required:
(i) The company's target cash balance.
(ii) The lower and upper cash limit.
(iii) Lynx Services Ltd.'s decision rules.
Date posted: December 14, 2021. Answers (1)
- Briefly describe the benefits of the Central Depository System (CDS) to the following stakeholders.
(i) Government;
(ii) Capital Markets Authority and Nairobi Stock Exchange;
(iii) Investors.(Solved)
Briefly describe the benefits of the Central Depository System (CDS) to the following stakeholders.
(i) Government;
(ii) Capital Markets Authority and Nairobi Stock Exchange;
(iii) Investors.
Date posted: December 14, 2021. Answers (1)
- Explain the benefits that are enjoyed by investors because of the existence of organized security exchanges.(Solved)
Explain the benefits that are enjoyed by investors because of the existence of organized security exchanges.
Date posted: December 14, 2021. Answers (1)
- You have been retained by the management of an international group to advise on the management of its
foreign exchange exposure.
Required:
(a) Explain the main types of...(Solved)
You have been retained by the management of an international group to advise on the management of its
foreign exchange exposure.
Required:
(a) Explain the main types of foreign exchange exposure
(b) Advise on policies which the corporate treasurer could consider to provide valid and relevant methods of reducing exposure to foreign exchange risk.
Date posted: April 15, 2021. Answers (1)
- What economic benefits might countries gain from forming a common market?(Solved)
What economic benefits might countries gain from forming a common market?
Date posted: April 15, 2021. Answers (1)
- State the differences between free trade areas, customs unions and common markets.(Solved)
State the differences between free trade areas, customs unions and common markets.
Date posted: April 15, 2021. Answers (1)
- Explain the features of structural adjustment programmes.(Solved)
Explain the features of structural adjustment programmes.
Date posted: April 15, 2021. Answers (1)
- State and explain the types of euro-currency loans.(Solved)
State and explain the types of euro-currency loans.
Date posted: April 15, 2021. Answers (1)
- ABC Ltd a UK firm has been invited to tender for a contract in Blueland with the local currency of Blues
(B). The company thinks that...(Solved)
ABC Ltd a UK firm has been invited to tender for a contract in Blueland with the local currency of Blues
(B). The company thinks that the contract should cost £1 850, 000 and is prepared to price the contract
at £2 million. The current exchange rate for Blues and £ is £1: B2.80. The company therefore bids for
B5.6 million. The contract will not be awarded until after six months. A 6 month currency option to sell
B5.6 million at an exchange rate of £1: B2.8 is currently costing £40 000.
ABC Ltd can either buy the option or enter into forward Exchange contract at a rate of £1: B 2.80,
Assume that the company fails to win the contract and the spot rate in 6 months time is £1:B2.50.
Required:
Advice the company on which alternative is better.
Date posted: April 15, 2021. Answers (1)
- XYZ Ltd, a UK firm has bought goods from a US supplier and must pay USD 4 million in 3 months time.
The company finance...(Solved)
XYZ Ltd, a UK firm has bought goods from a US supplier and must pay USD 4 million in 3 months time.
The company finance director wishes to hedge against the foreign exchange risk and is considering 3
methods:
- Using the forward exchange contract
- Using the money market hedge
- Using a lead payments
Annual interest rate and foreign exchange rate are given below:
Required
Advise the company on the best method to use.
Date posted: April 15, 2021. Answers (1)
- Assume that the following quotation is given:
Spot rate £1: USD1.635 - USD 1.6385
One month forward...(Solved)
Assume that the following quotation is given:
Spot rate £1: USD1.635 - USD 1.6385
One month forward 0.5 – 0.47 cents premium
Required:
Compute the cost of the forward cover for a customer
Buying dollars 1 month forward.
Selling dollars one month forward.
Date posted: April 15, 2021. Answers (1)
- Assume that the foreign currency (F) has been quoted against the £ as follows :
Spot rate ...(Solved)
Assume that the foreign currency (F) has been quoted against the £ as follows :
Spot rate £1: F2156 – 2166
3 months forward rate £1: F2207 – 2222
Required:
1. Determine the amount required in sterling pound to buy 2 million foreign currencies
• At the spot
• In 3 months time under the forward exchange contract.
2. Compute the amount a customer would get if he were to sell 2 million foreign currency.
• At the spot rate
• In 3 months time under forward exchange contract
Date posted: April 15, 2021. Answers (1)
- State and explain the ways in which the exchange rate exposure can be perceived.(Solved)
State and explain the ways in which the exchange rate exposure can be perceived.
Date posted: April 15, 2021. Answers (1)
- Outline the advantages of using fixed exchange rates.(Solved)
Outline the advantages of using fixed exchange rates.
Date posted: April 15, 2021. Answers (1)
- Define the term fixed exchange rate.(Solved)
Define the term fixed exchange rate.
Date posted: April 15, 2021. Answers (1)
- Assume that the direct quote is deuchemark is DM 1 - USD 0.5 while the general interest rate in US is
6% and general interest rate...(Solved)
Assume that the direct quote is deuchemark is DM 1 - USD 0.5 while the general interest rate in US is
6% and general interest rate in Germany is 3%.
Required:
Compute the percentage change in direct quote and the new exchange rate.
Date posted: April 15, 2021. Answers (1)
- Assume that the direct quote between the USD and £ is £1 = USD 1.5 and that the inflation rate in UK is
10% and the...(Solved)
Assume that the direct quote between the USD and £ is £1 = USD 1.5 and that the inflation rate in UK is
10% and the inflation rate in the US is 6%
Required
Compute the % change in the direct quote and determine the new exchange rate.
Date posted: April 15, 2021. Answers (1)
- Dimango Company is considering whether it would be financially advisable to retire its existing long term
debt with a cheaper loan. The current loan of Sh...(Solved)
Dimango Company is considering whether it would be financially advisable to retire its existing long term
debt with a cheaper loan. The current loan of Sh 10 million has an annual interest charge of 15% and has 10
years to maturity. The company has Sh 125,000 of unamortized loan expenses still in the books.
If the company decides to redeem the loan, there is an early payment penalty amounting to 10% of the loan.
A new Sh 10 million loan can be raised at 13% per annum for a ten year period. It is expected that
underwriting costs will amount to Sh 600,000. In addition to these costs, the company will be further
required to pay interest for the two months which would allow the normal interest payment due to be
reached for the old loan.
Dimango Company is in the 40% income tax bracket.
Required:
(a) Calculate the net amount of cash investment required for the refunding of the loan.
(b) Compute the annual cash savings which result from refunding
(c) Determine whether refunding is advantageous to the company
(PVIFA 8% = 6.71)
Date posted: April 15, 2021. Answers (1)
- XYZ Ltd has an issued share capital of 10 million ordinary shares with a par value of £1, on which it pays a
constant dividend of...(Solved)
XYZ Ltd has an issued share capital of 10 million ordinary shares with a par value of £1, on which it pays a
constant dividend of £0.4 per share. The market value per share was £2 ex-dividend.
The company then proposed a 1 for 4 rights issue with an issue price of £1.50. The money raised would be
used to finance a major new project, which was expected to increase annual profits after taxation by
£950,000. This information is released together with the announcement of rights issue.
Required:
(a) Compute the cum-right price at the eve-of the rights issue
(b) Compute the theoretical ex-rights price
(c) Calculate the market price per share at the time of the rights issue if the money raised was to be used
to redeem £3,750,000 of 8% debentures. The tax rate is 50%.
Date posted: April 15, 2021. Answers (1)