XYZ Ltd. has a total debt of $500,000, out of which $200,000 is due for payment in
Fantastic news! We've Found the answer you've been seeking!
Question:
XYZ Ltd. has a total debt of $500,000, out of which $200,000 is due for payment in the next year, and the remaining $300,000 is due after one year. The company has a net income of $100,000 and a cost of debt of 10%. The company is considering two options to meet the debt obligation due in the next year: (1) issue new debt at a cost of 12%, or (2) use its cash reserves to pay off the debt. Which option should the company choose, assuming it wants to maximize shareholder wealth? Show your calculations.
Related Book For
Financial Accounting
ISBN: 978-0470507018
7th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date: