1) Define at least two common credit agreement provisions (loan covenants).

2) Classify the following as long term or current liabilities: Accounts Payable, Accrued Liabilities, Note Payable with a total balance due in 5 years, Mortgage Loan with payments made monthly over 5 years.

3) What are the three components of the cost of capital?

4) Calculate the after-tax cost of debt using the following information (hint: see page 285 in the text). A company issues $2 million at 9% interest with a 15% tax rate. What is the after-tax cost of debt? Calculate the cost of issuing preferred stock using the same information above. What does the preferred stock interest cost? Using the information above, what are the advantages and disadvantages of both methods?

5) What are some reasons a company would choose not to offer cash dividends? What impact might this have on the business operations?

Answer rating: 100% (QA)

Answer1 A loan covenant is simply an alternate term for the word promise Banks include covenants in their loan agreements to secure their position as a lender Normally a bank would not lend you money ... View the full answer