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finance_assignment2-1

finance_assignment2-1 - Finance Assignment 2-1 Flow of...

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Finance Assignment 2-1 Flow of Funds Exercise “Carson Company is a large manufacturing firm in California that was created 20 years ago by the Carson family. It was initially financed with an equity investment by the Carson family and 10 other individuals. Over time, Carson Company has obtained substantial loans from finance companies and commercial banks. The interest rate on the loans is tied to market interest rates and is adjusted every six months. Thus, Carson’s cost of obtaining funds is sensitive to interest rate movements. It has a credit line with a bank in case it suddenly needs to obtain funds for a temporary period. It has purchased Treasury securities that it could sell if it experiences any liquidity problems”, according to Jeff Mandura, author of Financial Markets and Institutions. Carson has a surplus unit because its assets value at about $50 million and generates sales of about $100 million each year. When the sales exceed the value of the assets that means that the company must have a surplus.
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