Ilaya-Ivisan, Ivisan, Capiz – 5805

Email Address: [email protected]

Tel. #: (036) 651-5101

COO – FORM 12

SUBJECT TITLE: FINANCIAL MANAGEMENT

INSTRUCTOR: IVY JOY C. SERVIANO, CPA
SUBJECT CODE: MS7

FINALS MODULE

TOPIC 1: SOURCES AND COST OF SHORT-TERM FUNDS

LEARNING OBJECTIVES:

At the end of this topic, the students are expected to:

1. Define short-term credit.

2. Determine the factors to be considered in selecting the sources of short-term
credit.
3. Determine the sources of short-term credit.
4. Determine the spontaneous sources of short-term credit.
5. Determine the unsecured negotiated sources of short-term credit
6. Determine the secured sources short-term credit.

NOTES:

WHAT IS SHORT- TERM CREDIT?

Short-term credit is debt scheduled to be paid within one year.

WHAT ARE THE FACTORS TO BE CONSIDERED IN SELECTING THESOURCE OF

SHORT-TERM FINANCING?

1. Cost – short-term debt is less expensive.

-Short-term rates are usually lower than long-term rates
-Short-term debts do not normally involve flotation or placement cost.
2. Availability of short-term funds when needed.
3. Risks – short-term debts are riskier. Interest rates may fluctuate and are more frequent
debt servicing is required.
4. Flexibility – short-term credit is usually more flexible than long-term debt. Short-term
loans can be arranged more quickly. Some lenders are willing than others to work with
the borrower.
5. Restrictions – certain lenders may impose restrictions, such as requiring minimum level
of net working capital.

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6. Effect on credit rating – some sources of short-term credit may negatively affect the
company’s credit rating
7. Expected money market conditions.
8. Inflation
9. The company’s profitability and liquidity positions, as well as the stability of its
operations.

WHAT ARE THE SOURCES OF SHORT-TERM CREDIT?

A. Spontaneous Sources – it includes trade credit, accruals, and deferrals.
B. Negotiated sources – it is composed of unsecured and secured short- term credit such
as commercial bank loans, commercial paper, pledging of inventories, pledging of
receivables, factoring of receivables and banker’s acceptance.

A. WHAT ARE THE SPONTANEOUS SOURCES OF SHORT-TERM CREDIT?

A. Trade Credit (Accounts payable) – considered as a spontaneous financing because it is

automatically obtained when a firm purchases goods or services on credit from a
supplier.

COST OF TRADE CREDIT

Trade credit usually bears no interest, but it is not costless. Its cost is implicit in the
terms of credit agreed upon (the discount policy and the credit period).

Ø No Trade Discount
Purchases on credit without trade discount are usually priced higher than cash
purchases. The difference between the selling prices is the implicit cost of
credit.

Ø With trade discount

If a supplier allows a trade discount for prompt payment, an implicit cost

B. Accruals (accrued expenses) – another form of spontaneous financing, which represent

liabilities for services that have been provided to the company but have not yet been
paid for.

C. Deferred Income – customers’ advance payments or deposits for goods or services that
will be delivered at some future date.

B. WHAT ARE THE NEGOTIATED SOURCES OF SHORT-TERM CREDIT?

I. WHAT ARE THE UNSECURED NEGOTIATED SOURCES OF SHORT-TERM CREDIT?

A. Commercial Bank Loans – short-term business credit provided by commercial banks,

requiring the borrower to sign a promissory note to acknowledge the amount of debt,
maturity and interest.

Ø Line of credit – the bank agrees to lend up to a maximum amount of credit to

a firm. This is applicable to firms that need frequent funding in varying
amounts.
• Revolving credit agreement – the bank makes a formal contractual
commitment to provide the maximum amount to a firm. The firm pays
a minimal commitment fee per year on the average unused portion of
the commitment.

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Ø Transaction loan (a single payment loan) – short-term credit for a specific

purpose.

COST OF BANK LOANS

a. Regular Interest Rate = INTEREST/ BORROWED AMOUNT

b. Discounted Interest Rate = INTEREST/ (AMOUNT BORROWED –INTEREST)
c. Effective Interest Rate = INTEREST/ USABLE LOAN AMOUNT

Ø USABLE LOAN AMOUNT = LOAN AMOUNT – DISCOUNT INTEREST –

COMPENSATING BALANCE
Ø COMPENSATING BALANCE – a certain percentage of the face amount
of the loan that must be maintained by a borrower on his/her loan.

B. Commercial Paper – short- term unsecured promissory notes issued by large firms with
great financial strength and high credit rating to other companies and institutional
investors such as trusts funds, banks, and insurance companies. Commercial papers
entail lower cost than bank financing. One disadvantage, however, is their limited access
and availability. Only the largest firms with the greatest financial strength can issue
commercial papers. The amount of funds available is limited to the excess liquidity of
big corporations.

COST OF COMMERCIAL PAPER

EFFECTIVE ANNUAL INTEREST RATE = (INTEREST COST PER PERIOD/USABLE

AMOUNT) X (NUMBER OF DAYS IN A YEAR/ NUMBER OF DAYSFUNDS ARE BORROWED)

II. WHAT ARE THE SECURED SOURCES SHORT-TERM CREDIT?

A. Pledging Receivable – a certain peso amount of receivables is provided by the

borrowers as collateral for a short-term loan.
B. Pledging Inventories – part or all of the borrower’s inventories are provided by the
borrowers as collateral for a short-term loan.

Classifications of Inventory loan

Ø Floating Lien – a creditor (lender) has a general claim on all of the borrower’s
inventory. The lender acquires title to the inventory and theborrower cannot control
its size or disposition.
Ø Trust Receipt – the lender holds title to specific units of inventory pledged which are
identified in writing on documents called trustreceipts.
Ø Warehouse Receipt – the inventory pledged is placed under the lender’sphysical and
legal possession. The pledged inventory is stored in a publicwarehousing company. The
inventory is released to the borrower only when such release is authorized by the
lender.

C. Other Sources of Short-term Funds

Ø Factoring of Accounts Receivables – a factor buys the accounts receivable of a firm
and assumes the risk of collection.
Ø Banker’s Acceptance – often used by the importers and exporters, theseare drafts
drawn by a non-financial firm on deposits at a bank. The bank’s acceptance is a
guarantee of payment.
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EXERCISES:

I. FIND WHAT IS ASKED.

1. A company obtained a short-term loan from a bank. Information about suchloan is as

follows:

Principal of loan 5,000,000

Stated interest rate 10%
Terms 1 year

If the rate is simple interest rate, the effective interest rate is _____________.
If the loan is discounted, the effective interest rate is _____________.

2. If a company received a 500,000 line of credit from its bank. Some informationabout the
credit is as follows:

Stated interest rate 10%

Compensating requirement balance 20%

a. Assuming that the company drew down the entire amount at the beginning of the
year, and the bank uses a simple interest rate, what isthe effective interest rate on
the loan?
b. Assuming that the company drew down the entire amount at the beginning of the
year, and that the loan is discounted, what is the effective interest rate on the loan?

3. A company received a line of credit from its bank. The stated interest rate is 12%,
deducted in advance. The line of credit agreement requires that an amount equalto 20%
of the loan be deposited into compensating balance account. On March 1,the company
drew down the entire usable amount payable after one year and received the proceeds
of 340,000. How much is the principal amount of the loan?

4. Jun traders, a merchandising firm, purchases merchandise from its suppliers on credit
terms of 2/10, n/30. Jun traders needs cash, so it is considering two alternatives:

Alternative 1 – obtain a short- term loan from a bank at an effective interest rate
of 12%

Alternative 2 – forego the discount on its credit purchases and pay on the 30th
day of the term.

Jun trader should choose? (use a 360-day year)

5. The expected boom in business in the coming period led the baby apple company
to decide to expand its operation. The expansion requires an increaseof 500,000
in working capital, which the company is considering to finance through any of
the following alternatives:

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I. Pledge of accounts receivable - The company’s average accounts receivableis 625,000 per
month. Financier will lend 80% of the face value of the receivables at 10 % interest rate
per annum, payable on the maturity of the loan.

II. Issue 515,000 of 3-month commercial paper to net 500,000. New paper will be issued
every 3 months.

III. Borrow from a commercial bank an amount that will net 500,000 after deducting a
compensating balance of 15% and interest of 5%.

Compute the cost of every alternative.

6. Lei Company enters into an agreement with a firm that will buy lei company’s accounts
receivable and assume the risk of collection. Details about the agreement are as follows:

Average amount of receivables to be factored 500,000

each
month
Average collection period 60 days
Amount to be advanced by the factor 80% of the face value of the
receivables
Interest deductible in advance 10% annually
Factor’s fee deductible in advance 2%
Annual savings of lie company in collection 60,000
expenses

1. How much is the monthly net proceeds from factoring of receivables?

2. What is the annual net cost of factoring?
3. What is the effective annual cost rate of financing?

7. Jam Traders, Inc. needs 100,000 to pay a supplier’s invoice for merchandised purchased with
terms of 2/10, n/30. Jam wants to pay on the tenth day of the credit so it can avail of the 2%
discount. The funds needed can be raised by obtaining a short- term loan from a bank which
agrees to grant a 30-day loan at 12% discounted interest per annum. The bank requires that the
compensating balance of 10% be maintained in the borrower’s non- interest bearing account.

a. The amount needed by Jam to pay the invoice within the discount period is ______________.
b. The principal amount of the loan that must be obtained from the bank to raise the needed fund
is _____________.
c. What is the effective rate of the loan _____________.
d. If Jam fails to pay the discount and pays the account on the 30th day of the term, what is the
annual cost of this non-trade credit? _________________

- - -END OF TOPIC 1- - -

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TOPIC 2: CAPITAL STRUCTURE AND LONG-TERM FINANCING DECISION

LEARNING OBJECTIVES:

At the end of this topic, the students are expected to:

1. Define capital structure.

2. Determine the optimal capital structure
3. Analyze the cost of capital.
4. Determine the factors influencing capital structure decisions.

NOTES:

A. BASIC CONCEPT AND TOOLS OF CAPITAL STRUCTURE MANAGEMENT

WHAT IS CAPITAL STRUCTURE?

Capital structure is the mix of the long-term sources of funds used by the firm. Its objective is to
maximize the market value of the firm through an appropriate mix of long-term sources of funds.
It is composed of long-term funds, preferred stock and common stockholder’s equity.

WHAT THE OPTIMAL CAPITAL STRUCTURE?

It is the mix of long-term sources of funds that will minimize the firm’s overall cost of capital.

B. SOURCES OF INTERMEDIATE AND LONG-TERM FINANCING (HYBRID FINANCING)

PRINCIPAL SOURCES OF FUNDS

1. External Sources: Debt, Equity, and Hybrid Financing
2. Internal Sources: Operations

A. DEBT FINANCING
ADVANTAGES:
1. Basic control of the firm is not shared with the creditor.
2. Cost of debt is limited. Creditors usually do not participate in the superior earnings of the firm.
3. Interest paid is tax deductible, thereby reducing cost of capital.
4. Substantial flexibility in the financial structure is enhanced by debt through the inclusion of
call provisions in the bond indenture.
5. The financial Obligations are clearly specified and of a fixed nature.

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6. In time of inflation, debt may be paid back with "cheaper pesos."

DISADVANTAGES:
1. Since debt requires a fixed charge, there is a risk of not meeting this obligation if the earnings
of the firm fluctuate.
2. Debt adds risk to a firm.
3. Debt usually has a maturity date.
4. Debt is a long-term commitment, a factor that can affect risk profiles.
5. Certain managerial prerogatives are usually given up in the contractual relationship outlined
in the bond's indenture contract. Example: specific ratios must be kept above a certain level
during the term of the loan.
6. There are clear-cut limits to the amount of debt available to the individual firm.

BASIC TYPE OF BONDS OR LONG-TERM DEBT:

1. Debenture Bonds — unsecured loan; these can be issued only by companies with the best credit
ratings.
2. Mortgage Bonds — pledge of certain assets, such as real property for a loan.
3. Income Bonds – pay interest only if the issuing company has earnings; these bonds are riskier
than other bonds.
4. Serial bonds – bonds with staggered maturities.

B. EQUITY FINANCING – major source is common stocks and retained earnings.

ADVANTAGES OF COMMON STOCK AS SOURCE OF FUNDS:
1. Common stock does not require a fixed dividend - dividends are paid from profits when
available.
2. There is no fixed maturity date for repayment of the capital.
3. The sale of common stock is frequently more attractive to investors than debt, because it grows
in value with the success of the firm.
• The higher the common stock value, the more advantageous equity financing is over
debt financing.

DISADVANTAGES OF COMMON STOCK AS SOURCE OF FUNDS:

1. As more shares are sold. the stockholders' control (voting rights) and share in earnings are
usually diluted.
2. Issuance of common stocks requires higher underwriting costs.
3. Common stock cash dividends are not tax deductible.
4. The average cost of capital may increase above the optimal level when too much equity is
issued.

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RETAINED EARNINGS
Earnings after deducting interest, taxes, and preferred dividends may be retained and used to pay
common cash dividends or be plowed back into the firm in the form of additional capital investment
through stock dividends.

ADVANTAGES:
1. The after-tax opportunity cost is lower than that for newly issued common stock.
2. Financing with retained earnings leaves the present control structure intact.

C. HYBRID FINANCING - — sources of funds that possess a combination of features; these

include preferred stock, leasing and option securities such as warrants and convertibles.

Ø PREFERRED STOCK — a hybrid security because some of its characteristics are similar to
those of both common stocks and bonds. Legally, like common stock, it represents a part
of ownership or equity in a firm. However, as in it has only a limited on a firm's earnings
and assets.

Features of Preferred Stock Issues

a. Priority to assets and earnings - the claims of preferred stockholders must first be
satisfied before the common stockholders receive anything.
b. Preferred stocks always have par value, which important in determining the amount due
to Preferred Stockholders in case of liquidation and in computing the preferred dividends.
c. Most preferred stocks provide for cumulative dividends.
d. Some preferred stock issues are -convertible to common stocks.

Advantages and Disadvantages of Issuing Preferred Stocks:

ADVANTAGES DISADVANTAGES
1. No default risk because non- payment of 1. Preferred dividends are not tax
dividends does necessarily mean deductible, hence, cost for the company is
bankruptcy. higher than that of bonds.
2. Dividend payment is limited to stated 2. The cumulative feature of preferred
amount. stock makes payment of preferred
dividends almost mandatory.
3. No voting rights like common stocks,
except in the case of financial distress.
4. Call features and provision of sinking
fund may be included, so the firm may
replace the issue of interest rate declines.

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Ø LEASE FINANCING
LEASE — a rental agreement that typically requires a series fixed payments that extend
over several periods.

LEASING VS. BORROWING - leasing represents an alternative borrowing. The lease

payments are very similar to amortization, with part of payment applied to principal and
part to interest. Like loan agreements, lease contracts usually contain restrictive covenants
like the requirement to maintain minimum debt-equity ratios or minimum level of liquid
assets.

Leasing Benefits
1. Increased flexibility
2. Certain maintenance at a known cost
3. Lower administrative costs
4. The tax shield generated by lease payments usually exceeds that from depreciation if
the asset were purchased.

Types of Leases
1. Operating Lease
2. Financial or Capital Lease
3. Sale-leaseback Arrangement
4. Direct Leases
5. Leveraged Leases

Ø CONVERTIBLE SECURITIES – preferred stock or debt issue that can be exchanged for a
specified number of shares of common stock at the will of the owner. These are considered
hybrid securities because they provide the stable income associated with preferred stock
and bonds in addition to the possibility of capital gains associated with common stocks.

ADVANTAGES DISADVANTAGES
1. By giving investors an opportunity to 1. Sale of convertibles may be thought of
realize capital gains, a firm can sell debt as selling common stock at higher than
with a lower interest rate. market price at the time the convertible is
issued.
2. Convertibles provide a way of selling 2. If the firm’s stock price rises sharply, it
common stock at prices higher than those would have been better off if it waited and
currently prevailing. sold the common shares at a higher price.

Ø OPTION – created by outsiders rather than the firm itself, it is a contract that gives its
holders the right to buy (or sell) stocks at some predetermined price within a specified
period of time.

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Ø WARRANT – an option granted by the corporation to purchase a specified number of

shares of common stock at a stated price exercisable until sometime in the future called
the expiration date. It is a company-issued call option. Often, it is attached to debt
instruments as an incentive for investors to buy the combined issue at a lower interest
rate.

C. COST OF CAPITAL

WHAT IS COST OF CAPITAL?

It is the cost of using funds. It is also called hurdle rate, required rate of return and cut-off rate.
The weighted average rate of return the company must pay to its long-term creditors and
shareholders for the use of their funds.

COMPUTATION OF COST OF CAPITAL

SOURCE CAPITAL COST OF

CAPITAL
CREDITORS LONG-TERM DEBT AFTER-TAX RATE OF INTEREST I (1-tr)
STOCKHOLDERS:
PREFERRED DIVIDENDS PER SHARE /
PREFERRED PREFERENCE SHARES CURRENT MARKET PRICE OR NET
ISSUANCE PRICE
COMMON ORDINARY SHARES CAPM OR DGM

COMPUTATION OF COST OF ORDINARY SHARES

1. CAPITAL ASSET PRICING MODEL

R=RF + B (RM – RF)

WHERE:

R = rate of return or (cost of capital)

RF = risk-free rate determined by the government securities
B= beta coefficient of an individual stock which is the correlation between the volatility
(price variation) of the stock market and the volatility of the price of the individual stock.
RM= market return
RM – RF = market risk premium or the amount above risk-free rate required to induce
average investors to enter the market
B(RM – RF) = risk premium

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2. THE DIVIDEND GROWTH MODEL

a. Cost of retained earnings = (D1/P0) + G

WHERE: P0 = current price

D1 = next dividend
G= growth rate in dividends per share (it is assumed that the dividend
payout ratio, retention rate and therefore the EPS growth rate are
constant)

b. Cost of new ordinary shares = (D1/P0(1 – FLOTATION COST) + G Flotation Cost = the
cost of issuing new securities.

WHAT ARE THE FACTORS INFLUENCING CAPITAL STRUCTURE DECISIONS?

1. Business Risk – uncertainty inherent in projections of future returns on assets.

• The greater the business risk, the less debt should be included in the capital structure.
2. Tax Position – generally, the higher the firm’s tax rate, the more debt it should include in
its capital structure. Reason: interest is tax deductible.
3. Financial Flexibility – refers to the firm’s ability to raise capital on reasonable terms even
under adverse conditions.
4. Managerial Aggressiveness – refers to some financial manager inclination to use more debt
to boost profit

EXERCISES:
1. Which of the following is not a source of long-term financing?

A. Common bonds C. Preferred stocks

B. Bonds D. Floating lien

2. One of the sources of long-term financing is the issuance of common stocks. The advantages
(to the issuer) of issuing common stocks are as follows, except

A. The sale of common stocks increases credit worthiness of the firm by providing more
equity.
B. Common stock cash dividends are not tax deductible as expense.
C. Common stock is frequently more attractive to investors than debt because it grows in
value with the success of the firm.
D. Common stock dividends are not fixed – they are paid from profits when available.

3. Bonds, a source of long-term financing, are long-term debt instruments. They are similar to
term loan, except that they are usually offered to the public and sold to many investors.
Among the advantages (to the issuer) of issuing bonds are as follows, except

A. Cost of debt is limited – bondholders usually do not participate in the superior earnings
of the firm.

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B. Interest paid on debt (bonds) is tax deductible.

C. Debt adds risk to a firm.
D. Basic control of the firm is not shared with the debt holders.

4. Ideally, a firm’s optimal capital structure is the one that balances the cost of debt and equity
capital and their associated risk levels. The optimal capital structure minimizes the firm’s

A. Weighted average cost of capital

B. Cost of debt
C. Cost of equity capital
D. Earnings per share

5. Which of the following statements is correct?

A. Capital structure is the mix of the long-term sources of funds used by the firm.
B. Capital structure consists of the firms long-term financing, i.e., long-term debt and
stockholders’ equity.
C. The optimum capital structure is a combination of long-term debt and equity that
minimizes the cost of capital and value of the firm.
D. Debt is cheaper than equity, but excessive use of debt increases the firm’s risk and
drives up the weighted average cost of capital.

ITEMS 6 TO 9 ARE BASED ON THE FOLLOWING INFORMATION:

Hector Corporation’s capital structure is as follows:
Bonds payable, 10 years, 10% P1,000,000
10% preferred stocks, P200 par value, 2,000,000
10,000 shares issued and outstanding
Common stocks, P50 per share, 1,500,000
30,000 shares issued and outstanding
Retained earnings 500,000
Total P5,000,000

6. For purposes of computing the company’s overall cost of capital, the cost of common stocks
and retained earnings is

a. 24% c. 20 %
b. 16.32% d. 13.6%

7. The cost of debt is

a. 7% c. 14.71%
b. 10% d. 7.58%

8. The cost of preferred stocks is

a. 10% c. 8%
b. 6.8% d. 5.44%

9. What is the weighted average cost of capital?

a. 34.80% c. 8.54%
b. 23.66% d. 12.60%

ITEMS 10 TO 11 ARE BASED ON THE FOLLOWING INFORMATION:

Harold Corporation’s common stocks currently sell for P50 per share. Floatation cost is 5%. In
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the past, the company paid dividends of P4.50 per share. The expected dividend growth is
10%.

10. Using the dividend growth model, the cost of capital is

a. 19.47% c. 20.42%
b. 19.90% d. 10.42%

11. What is the cost of retained earnings?

a. 19.47% c. 20.42%
b. 19.90% d. 10.42%

ITEMS 12 TO 13 ARE BASED ON THE FOLLOWING INFORMATION:

The return on market portfolio is 12% and the risk-free rate is 5%.
The beta coefficient is 1.4.

12. Using the capital asset pricing model, what is the cost of capital (or required rate of
return)?

a. 14.8% c. 9.8%
b. 12% d. 14.0%

13. If the beta coefficient increases to 1.6, the required rate of return will increase (decrease)
by

a. 0.2% c. 1.4%
b. (0.2%) d. (1.4%)

ITEMS 14 TO 16 ARE BASED ON THE FOLLOWING INFORMATION:

Ayie Corporation is considering a project for the coming year that will require an investment
cost of 100M. The company plans to finance the project by a combination of debt and equity,
as follows:

Ø Issue P20M of 10-year bonds at a price of 102, with an interest rate of 10%, and
flotation cost of 3% of par.
Ø Use P80M of funds generated from earnings retained in the business.

The expected market rate of return is 14%. The current rate of Treasury Bills is 8%. The beta
coefficient for Ayie Corporation is 1.2. The corporate income tax rate is 30%.

14. What is the effective rate of interest of the bonds?

a. 10% c. 10.20%
b. 9.89% d. 10.10%

15. What is the after-tax effective cost of bonds?

a. 6.80% c. 6.73%
b. 7.07% d.6.94%

16. Using the capital asset pricing model (CAPM), what is the cost of equity capital for Ayie
Corporation?

a. 9.6% c. 15.20%
b. 10.34% d.7.2%

ITEMS 17 TO 20 ARE BASED ON THE FOLLOWING INFORMATION:

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Apple Corporation is engaged in the call center business. A boom in this type of business has
caused Apple Corporation’s management to consider expanding its operations by opening more
call centers in key cities all over the country. The planned expansion project requires an
investment of P240M, a 100% increase in the corporation’s present capital structure.
Management is considering three financing alternatives:

Alternative 1 – Debt and Equity Financing

Ø Float bonds with 10% interest rate, expected proceeds of P72M, net of flotation costs
Ø Issue 8% preferred stocks, expected proceeds of P48M, net of P2M flotation costs.
Ø Issue common stocks, expected proceeds of P120M, net of 6% flotation costs.

Alternative 2 – Debt Financing

Ø Float bonds with 12% interest rate, expected proceeds of P240M, net of flotation costs

Alternative 3 – Equity Financing

Ø Issue common stocks, expected proceeds of P24M, net of 5% flotation costs.

The company’s capital structure is composed of 30% bonds, 20% preferred stocks, and 50%
common stocks.
The common stocks currently sell for P50 per share. For the past 2 years, common stock
dividends amounted to P5 per share. The expected dividend growth rate is 4%. Apple
Corporation pays income tax rate of 30%.

17. What is the weighted average cost of capital for Apple Corporation’s first financing alternative?

a. 11.30% c. 15.06%
b. 30.19% d. 6.80%

18. What is the weighted average cost of capital for Apple Corporation’s second financing
alternative, assuming that the costs of preferred stocks and common stocks are 8.5% and
15%, respectively?

a. 31.66% c. 10.06%
b. 8.16% d. 11.65%

19. What is the weighted average cost of capital for Apple Corporation’s alternative 3, assuming
that the costs of bonds and preferred stocks are 6.8% and 8.33%, respectively?

a. 30.08% c. 11.21%
b. 13.06% d. 11.19%

20. What is the after-tax weighted marginal cost of capital for Apple Corporation’s financing
alternative 2, consisting solely of bonds?

a. 8.40% c. 3.84%
b. 12.00% d. 17.65%

END OF FINALS MODULE

References:
Reviewer in Management Advisory Services (RODELIO S. ROQUE, BSBAA,CPA)
Reviewer in Management Advisory Services (FRANKLIN T. AGAMATA, MBA,CPA)
www.investopedia.com
www.toptal.com
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