Chapter 5

Question 1

Factors considered by lenders

Answer 1

Strap

Security offered

Timeframe

Repayment profile

Amount requested

Purpose

Question 2

Credit scores investment grade/junk cut off

Answer 2

S and P

BBB and lower

Moody,

Baa and lower

Question 3

Reasons for a bond, market yield to be higher than it’s cost of debt

Answer 3

Interest is allowable for tax purposes

Question 4

Information needed to supply bank evidence of creditworthiness

Answer 4

Details of the forecast cash flows for new projects.

Details of the securities available.

Details of the proposed repayment arrangements

Question 5

In the lease versus by decision, the discount rate use in the present value calculation for the lease versus by option is

Answer 5

The companies post tax cost of debt

Question 6

Some of digits formula

Answer 6

N. ( N +1)

Divided by

2

Question 7

Steps involved in the sum of digits method

Answer 7

Step one, calculate the total interest charge relating to the lease

Step two, apply the sum of digits formula,

step, three multiply the total interest by N minus X divided by some of digits

Question 8

Present value calculations after tax

Answer 8

Multiply the bank borrowing rate by one minus the tax rate

Question 9

Eurobonds

Answer 9

Used by larger businesses to raise money on international markets