Question

The balance sheet as of December 31, 2014, for Manheim Corporation follows:


REQUIRED:
a. Compute Manheim Corporation’s long-term debt/equity ratio.
b. Assume that Manheim Corporation is considering borrowing money and signing a five-year note with the following terms:
Face value ............. $40,000
Stated interest rate ......... 0%
Effective interest rate ....... 11%
Compute the proceeds of the note, and compute the company’s long-term debt/equity ratio if it decides to borrow the money.
c. Assume that Manheim Corporation is considering issuing bonds that mature on December 31, 2034. The bonds have a face value of $40,000, a stated interest rate of 10 percent, and an effective interest rate of 8 percent. Compute the proceeds from the bond issuance, and compute the company’s long-term debt/equity ratio if it issues the bonds. The bonds pay interestsemiannually.


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  • CreatedAugust 19, 2014
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