Question 4. (20 marks) While many economies were shut down during the pandemic, most firms...
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Question 4. (20 marks) While many economies were shut down during the pandemic, most firms suffer while a small number of these firms might extinct forever. On the other hand, some firms in selected industries actually thrived during this economic environment. Boeing, which had been going through a crisis of its own with its 737 Max even before the pandemic, reported a US641 million loss for the first quarter of this year. Around the same time, Boeing borrowed an addition US$25 BILLION of new debt. Apple Computers also borrowed US$8 billion of new debt in May 2020. For 2019, Apple's net income was US$55 billion, has operating cash flow of US$69 billion, has cash and equivalent of US$66 billion and total asset of US$339 billion at year end. (1) List and explain the benefits that firms could achieve from use of debt financing. (X marks) (2) List and discuss some potential costs of using debt financing. (X marks) (3) Apple Computers is a very successful firm despite the pandemic. Why would Apple want to borrow money at this time? Would borrowing money at this time indicate a sign of weakness to the investing community
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