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Question 1a 4000007300000004108000bDebt Ratio Total Debt Total Assets11505002400069Current Ratio Current Assets Current Liabilities14001150122Return on Assets ROANet Income Common equity 73004240011505000389cm121 The effective rate for continuous compoundingk1QRm110075annual1942 The approximate percentage cost of foregoing this discount is 048995236520883 Conversion RatioPar Value of Convertible BondConversion Price of Equity1000402510Conversion value in 10 years2525108134933100010009PVIFA134933PVIF Kc10Kc10134933100090109034933011191119K C111644210001349333Trade credit from suppliers is cheapest However this is the only form of shortterm financing that automatically increases with sales which is not good for longterm financing The bank financing has lower interest rate but since it is a line of credit the bank could reduce the line limit at the first hint of any problems for the firm or a change in credit conditions generally Thus if the firm needs permanent financing it should really focus on convertible bonds Convertible bonds are often referred to as a form of delayed equity financing In conclusion the convertibles appear to be the most attractive form of financing when qualitative as well as quantitative factors are considered Question 2Old PolicyNew PolicyNewOldRevenue14600000 15330000 730000 Production Costs
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