Q7: Your firm regularly issues bonds. A member of your Board of Directors was approached by an investment bank offering derivatives contracts to lower your cost of borrowing. Write page memo to the Board describing the benefits and pitfalls of such a deal.

Q10: Write no more than page citing the pros and cons of the two quotes in light of financial market history since the 1980s. Cite High Country Seasoning and Pacific Grove Spicy as an example.

a) Debt capacity (the ability to borrow) is a resource that should be maximized. This quote is from Marriott Corporation back in the 1980s. b) Debt capacity should be measured based on recession levels of EBIT. This quote paraphrases Gordon Donaldson back in the 1960s.