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Corporate Finance Stratergy - Assignment Example

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Corporate Finance Stratergy

ASSIGNMENT COVERS SHEET Office use only INDICATIVE MARK All marks are subject to ratification at the appropriate Examining Board. ...
……………………………………………………………..…………………………………………..………………………………………………………………………………………………………………………………………………………………………………………………………………………………..……………………………………………………… Problem 1 1. Calculate the combined effect of the three off-balance-sheet items in Exhibit 3 on each of the following three financial ratios shown in Exhibit 2. Following is the given information of the ratios in the Exhibit 2. Exhibit 2 - Selected Ratios and Credit Yield Premium Data for Montrose EBITDA / interest expense 4.72 Long-term debt / equity 0.30 Current assets / Current liabilities 1.05 Credit yield premium over US Treasuries 55bps Following is the given information of the off balance sheet items in the Exhibit 3. Exhibit 3 – Hudson Chemical off-balance sheet items 1 Hudson Chemical has guaranteed the long-term debt (principal only) of an unconsolidated affiliate. This obligation has a present value of $995,000. 2 Hudson Chemical has sold $500,000 of accounts receivable with recourse at a yield of 8 percent. 3 Hudson Chemical is a lessee in a new non-cancellable operating leasing agreement to finance transmission equipment. The discounted present value of the lease payments is $6,144,000 using an interest rate of 10 percent. The annual payment will be $1,000,000. When we calculate the combined effect of the three off balance sheet items on the three ratios the following changes will take place. EBITDA / Interest Expense a. The guarantee of long term debt will not affect operating (EBITDA) or the interest expense. This ratio ...Show more

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