Question: 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 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 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 is 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 chose not to offer cash dividends? What impact might this have on the business operations?