1) John just bought the property for $7,500,000. He paid 30% deposit and arranged the home mortgage loan with HSBC with the given terms:
i) Interest rate of 3% per annum
ii) First repayment: 7 months from now(t=7)
iii) Years of repayment: 20 years= 240 months
Determine the amount of monthly repayment?
2) Some financial data for 3 corporations are shown below:
Measure Firm A Firm B Firm C Norm
Debt ratio 15% 20% 35% 25%
Times burden covered 9 times 11 times 6 times 9 times
Price/earnings ratio 10 times 12 times 5 times 10 times
a) Which firm seems to be extremely levered?
b) Which firm seems to be employing financial leverage to most suitable degree?
c) What description can you give for higher price/earnings ratio enjoyed by firm B as compared with firm A?