A firm should agree to whatever restrictive covenants will achieve the lowest interest cost for its debt

1)      A firm should agree to whatever restrictive covenants will achieve the lowest interest cost for its debt.
2)      If there are no potential conflicts of interest, can there be an agency problem?
3)      When a firm is healthy, is it possible to predict how claimant coalitions are likely to form if the firm were to fall into financial distress?
4)       If there is no asymmetric information, can there be an agency problem?
5)      Moral hazard…..
6)      A firm has a total liabilities of $45 million and owners’ equity of $55 million, so that it has $100 million in total assets, $30 million of which are in cash. If the firm unexpectedly decides to undertake a new investment project and uses $25 million of its cash to acquire manufacturing equipment.
7)      A journalist once looked at several US corporation balance sheets and said: “I see why US corporations have so much trouble: Their debt is often bigger than their equity, so they owe more than have”
8)      A hedge fund is considering making a 5-year $600,000, 9,5% APR, interest only loan. They will get monthly interest payments and the entire principal at the end of 5 years. Before making the loan, it will cost the fund $20,000 for due diligence, and after making the loan, it will cost the fund $500 per month for monitoring. Based on only the information above (to be even more clear, ignoring taxes), and assuming the borrower makes all the required payments on time, what APY interest rate does the fund expect to earn?
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