Chapter 6,
Pg. 161 Flow of Funds Exercise
a. No. Carson could not issue commercial paper seeing a large amount of debt it has. It may rely on debt to obtain additional funds. So before it would be able to issue any commercial paper, it would have to go public (issue stock).
b. When using a line of credit, the cost of forgoing the return on these securities is lower than the cost incurred. So for this reason, I think Carson should consider selling its holdings of Treasury securities.
Chapter 7
Pg.186 Flow of funds exercise
a. I will say that the Carson decision to buy or not a larger facility reside in its confidence. So if it feels confident that it can utilize the space, why not do it? In the short term, …show more content…
No need for Carson to issue bonds. Carson will need to take into consideration the market change as the Fed’s monetary policy can cause higher interest rates. When the interest rates is higher, the economic growth will be reduced and that could make Carson’s products demand to be adversely affected.
b. If I were involved in the meeting, I think the focus should be put on the Fed’s impact on interest rates because if the Fed’s monetary policy is not affecting interest rates that could mean the economy should stay strong, and I will suggest Carson to pursue expansion. Between both officers, we have to pay attention to whose view is correct and make sense because their argument for financing with long- term fixed rates is not without risk and should be questioned, and as we can see the CEO’s view of the Fed’s monetary policy conflicts with the CFO’s view.
c. The decision to expand should be relied to the monetary policy that could slow the economic growth as a means of reducing inflation in the case the Fed’s actions lead to interest rate rising. In the case, the interest rates would rise because of a strong demand for loanable funds, I do believe that could reflects a strong economy, and Carson could see a strong demand for its products. So, Carson should expand in this case. But if the contrary happens, Carson should not take the risk to expand because it will not be able to fully utilize its production