- Debt covenants and its alternatives of following case Overview Huy Publications Ltd. (HPL) operates in the...
Fantastic news! We've Found the answer you've been seeking!
Question:
- Debt covenants and it’s alternatives of following case
Transcribed Image Text:
Overview Huy Publications Ltd. (HPL) operates in the highly competitive printing business, a sector known for its high rate of business failures. While HPL has had some rough financial years in the past, it now owns state-of-the-art printing facilities-financed through government- guaranteed debt-that have stabilized the company's position. HPL is controlled by Jack Huy and his two sons, but there are several other shareholders who were brought into the company when additional share capital was necessary for survival. In March 20X2, HPL completed negotiations for a 10-year, $14,600,000 loan. Senior management was meeting to evaluate the three alternatives: 1. A 10-year $14,600,000 long-term loan from the Canadian Bank. The loan has the following terms: a. The interest rate is 8.2%, compounded annually. The interest rate is fixed for the life of the loan and is paid at the end of each year. b. Principal is to be repaid in one lump sum at the end of 10 years. c. The bank will charge a $19,000 upfront administrative fee. d. HPL will be required to move all banking activities of the company to the Canadian Bank (from the Ottawa Bank, its current financial institution.) This will cost HPL $5,500 in fees, either at Canadian or Ottawa. e. HPL will agree to a maximum debt to equity ratio of 2-to-1 and pay no dividends in excess of 30% of reported earnings during the life of the loan. Ratios are based on audited financial statements. f. Loan security is a second mortgage on HPL's printing facilities and personal guarantees from the principal shareholders of HPL. Overview Huy Publications Ltd. (HPL) operates in the highly competitive printing business, a sector known for its high rate of business failures. While HPL has had some rough financial years in the past, it now owns state-of-the-art printing facilities-financed through government- guaranteed debt-that have stabilized the company's position. HPL is controlled by Jack Huy and his two sons, but there are several other shareholders who were brought into the company when additional share capital was necessary for survival. In March 20X2, HPL completed negotiations for a 10-year, $14,600,000 loan. Senior management was meeting to evaluate the three alternatives: 1. A 10-year $14,600,000 long-term loan from the Canadian Bank. The loan has the following terms: a. The interest rate is 8.2%, compounded annually. The interest rate is fixed for the life of the loan and is paid at the end of each year. b. Principal is to be repaid in one lump sum at the end of 10 years. c. The bank will charge a $19,000 upfront administrative fee. d. HPL will be required to move all banking activities of the company to the Canadian Bank (from the Ottawa Bank, its current financial institution.) This will cost HPL $5,500 in fees, either at Canadian or Ottawa. e. HPL will agree to a maximum debt to equity ratio of 2-to-1 and pay no dividends in excess of 30% of reported earnings during the life of the loan. Ratios are based on audited financial statements. f. Loan security is a second mortgage on HPL's printing facilities and personal guarantees from the principal shareholders of HPL.
Expert Answer:
Answer rating: 100% (QA)
Huy Publications Ltd HPL is considering three alternatives for a 10year 14600000 loan 1 A longterm loan from the Canadian Bank with an 82 fixed intere... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these accounting questions
-
When would it be more advantageous for a firm to use more debt to finance its business? How might this affect the cost and riskiness of the business? How would we determine the cost of both debt and...
-
Huy Publications Ltd. (HPL) operates in the highly competitive printing business, a sector known for its high rate of business failures. While HPL has had some rough financial years in the past, it...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Knowing that two equal caps have been removed from a 10-in.-diameter wooden sphere, determine the total surface area of the remaining portion. 4 in 10 in.
-
Minimize g = 12y1 + 8y2 + 10y3 subject to y1 + 2y3 10 y1 + y2 12 2y1 + 2y2 + y3 8 Use the simplex method.
-
Voyeur Dorm operates an Internet-based website that provides a 24-hour-a-day Internet transmission portraying the lives of the residents of 2312 West Farwell Drive, Tampa, Florida. Throughout its...
-
A heat pump works on the principle of the (a) First law of thermodynamics (b) Second law of thermodynamics (c) Zeroth law of thermodynamics (d) Third law of thermodynamics.
-
You, CA, are employed at Beaulieu & Beauregard, Chartered Accountants. On November 20, 20X5, Domenic Jones, a partner in your firm, sent you the following email: Our firm has been reappointed...
-
1. What are the three characteristics of Big Data, and what are the main considerations in processing Big Data? 2. Describe the challenges of the current analytical architecture for data scientists....
-
Think about your school or local library and the processes involved in checking out books, signing up new borrowers, and sending out overdue notices, all from the librarys perspective. Describe three...
-
Mako Industries has annual credit sales of $2,000,000. Current expenses for the collection department are $50,000, bad-debt losses are 1.00%, and the DSO is 25 days. The firm is considering easing...
-
The process in which many loans are pooled together and interests in these pooled loans are sold to investors is known as __________.
-
The term underwriting standards refers to the credit risk standards that lenders require to be met before they will grant a loan to a borrower. True/False
-
Investment banks and mortgage lenders began to invest in CDSs to hedge against claims against them in the event of default on the bonds they had sold or securitized. True/False
-
Which one of the following statements regarding pay-option ARM loans is not correct? (a) Some borrowers of pay-option ARM loans choose to make monthly payments that are not large enough to cover the...
-
As a result of the process of tranching, a ratings agency could give a higher credit rating to a class of securities carved from a pool of loans than would be given to other classes of securities...
-
Bend buys a dining room furniture set for $1,128. The sales tax rate in her city is 7.5% How much will Bend have to pay in all for the furniture set? Round to the nearest cent if necessary.
-
How is use of the word consistent helpful in fraud reports?
-
Selected data for The Hershey Company for Year 1 through Year 3 appear in Exhibit 4.29. REQUIRED a. Compute ROA and its decomposition for Year 2 and Year 3. Assume a tax rate of 35%.b. Compute ROCE...
-
Arbortech, a designer, manufacturer, and marketer of PC cards for computers, printers, telecommunications equipment, and equipment diagnostic systems, was the darling of Wall Street during Year 6....
-
When a firm incurs costs on an item to be used in operations, management must decide whether to treat the cost as an asset or an expense. Assume that a company used cash to acquire machinery expected...
-
An inventor claims to have developed an engine that takes in \(100 \mathrm{MJ}\) of heat at \(400 \mathrm{~K}\), rejects \(40 \mathrm{MJ}\) of heat at \(200 \mathrm{~K}\), and delivers \(15...
-
The value of \(\Delta W=\int_{1}^{2} P d V\) of an ideal gas in a reversible isothermal process is (a) 0 (b) \(\frac{P_{1} V_{1}-P_{2} V_{2}}{\gamma-1}\) (c) \(P_{1} V_{1} \ln \frac{V_{2}}{V_{1}}\)...
-
Compressibility factor for a given vapour or gas can be represented by (a) \(Z=1+B^{\prime} P+C^{\prime} P^{2}+D^{\prime} P^{3}+\cdots\) (b) \(Z=1+\frac{B}{V}+\frac{C}{V^{2}}+\frac{D}{V^{3}}+\cdots\)...
Study smarter with the SolutionInn App