finance_assignment4-2 - Finance Assignment 4-2 Flow of...

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Finance Assignment 4-2 Flow of Funds exercise Jamie Hinson October 15, 2007
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(a)Carson Company should be very interested in future interest rate movements because he needs to borrow more money in order to expand his business and he is trying to decide whether to borrow additional funds through loan or by issuing bonds. Carson is also considering issuing stock to raise funds for the next year. Carson needs to know the interest rates in order to help him decide which financial route he should take. (b)Given Carson’s expectations, it is likely that he expects interest rates to rise which is one reason why he is looking to go other routes rather than taking out a loan. There is a huge impact of economic growth on interest rates. “Assume that as a result of more optimistic economic projections, most businesses increase their planned expenditures for expansion, which translates into additional borrowing. The aggregate demand schedule will shift outward. The supply of-loanable-funds schedule may also shift, but it is more difficult to know how it will shift. It is possible that the increased expansion by businesses will lead to more income for construction crews and others who service the expansion.
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This note was uploaded on 09/28/2010 for the course MBA 737 taught by Professor Wright during the Spring '10 term at Heidelberg.

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finance_assignment4-2 - Finance Assignment 4-2 Flow of...

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