| Course | GF520 Corporate Finance |
|---|---|
| Unit | Unit 1 |
| Paper type | Discussion board post |
| Length | About 460 words, 2 pages double-spaced |
| Format | APA 7 discussion post |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF520 Unit 1
Borrowing at 5.44 Percent While Cash Earns 3.08: A Unit 1 Post on a Trucking Firm's Funding Choice
GF520 · Unit 1 Discussion
Posted by [Student Name]
The trucking company, its rates and the classmates are composite; the articles and textbook cited are real.
Initial Post
Two years ago the regional trucking company where I worked replaced ten tractors, about $1.65 million in all. It financed them with a five-year loan secured by the trucks at 7.25 percent, even though it had $4 million in a money market fund earning 4.1 percent. At the time I thought management was simply being careless with cash.
Converting both rates to after-tax terms changes the comparison but not the conclusion. Interest on the loan is deductible, so at a blended 25 percent tax rate the loan cost 5.44 percent after tax. The fund's interest is taxable, so it earned 3.08 percent after tax. Keeping the cash and borrowing instead cost the firm about 2.4 points a year, roughly $39,000 on the loan balance.
The 2.4-point gap was not a mistake but a price: the firm paid about $39,000 a year to keep $1.65 million of cash it could reach in a day, and the question is whether that insurance was worth its premium.
What did the premium buy? Three things, as far as I could see. First, payroll in a trucking company swings with the season, and drivers must be paid weekly whatever customers do. Second, diesel prices can jump within weeks, and fuel is the largest cost after labor. Third, the company's revolving credit line carried a covenant requiring a minimum cash balance, so spending the reserve on tractors could have put the line itself at risk. Research on corporate cash holdings finds that firms with volatile cash flows and costly outside funding hold more cash, for exactly these reasons (Opler et al., 1999).
Could the firm have issued shares instead of borrowing? That would have avoided interest but not cost. Equity is usually the most expensive source of capital, because shareholders bear the most risk and receive no tax deduction for what they are paid (Brealey et al., 2023).
Reply to Marcus
Marcus, you said your hospital paid cash for its imaging equipment to avoid interest. What did that leave in the operating account, and what would the hospital have paid for an emergency line of credit afterward? The interest saved has a cost on the other side.
Reply to Elena
Elena, your retailer's equipment lease looks cheaper than its loan quote on the monthly payment. Have you compared them after tax, counting that the lease payment and the loan interest are deducted differently? The ranking sometimes flips once taxes are included.
References
Brealey, R. A., Myers, S. C., & Allen, F. (2023). Principles of corporate finance (14th ed.). McGraw Hill.
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46. https://doi.org/10.1016/S0304-405X(99)00003-3
Reading the GF 520 Unit 1 instructions
The first GF520 discussion asks for a financing decision you have seen, or can find in public filings, and an explanation of its cost. State what was bought, how it was paid for and what alternative existed. Convert every rate to an after-tax basis before comparing, because interest is deductible and investment income is taxed. Then explain what the firm gained by choosing the more expensive route, linking each benefit to something concrete in the business, such as seasonal payroll, volatile input prices or a loan covenant. Consider at least one other source of funds, such as equity, and say why it would or would not have been cheaper. Replies should name a cost the classmate left out. Use the textbook and one research article on cash holdings or capital choice, cited in APA 7, within the posted length.
How this GF520 Unit 1 example is built
The post opens with the purchase and the two rates side by side, then admits the writer once thought management careless. The second paragraph converts both rates and computes the 2.36-point gap and its dollar cost on $1.65 million. The highlighted sentence restates the gap as an insurance premium. Three reasons follow for holding cash: weekly driver payroll that does not wait for customers, diesel price spikes and a revolver covenant setting a minimum balance. Opler and colleagues' study of corporate cash holdings supports the pattern. A paragraph on issuing shares uses Brealey, Myers and Allen to explain why equity is not free. The reply to Marcus asks what a hospital's cash purchase left in its operating account, and the reply to Elena asks whether a lease and a loan were compared after tax.
Reading the GF520 Unit 1 grading rubric
Credit on this first post in the MS in Finance core goes mostly to accurate comparison. Graders check that rates are converted after tax and that the gap is stated both as a percentage and in dollars. The next share rewards explaining the benefit of the costlier choice with reasons tied to the business rather than general claims about liquidity. Considering another funding source, especially equity, shows the student understands that every source has a cost. Instructors also look for at least one scholarly source beyond the textbook. Replies earn their points by identifying something specific the classmate did not price. Clear prose, correctly formatted references and a post near the posted word count account for what remains.
Common GF520 Unit 1 mistakes, and how to avoid them
Many GF520 Unit 1 posts compare pre-tax rates, which overstates the cost of debt and the return on cash. Others describe the purchase in detail and never put a number on the choice. Some writers declare a decision wrong because it cost more, without asking what the extra cost bought. Equity is often treated as free because it carries no interest payment. Replies tend to agree with classmates rather than adding a missing cost. If your example is a lease, a line of credit or a hospital bond rather than a truck loan, the same steps apply: name the alternative, convert both to after-tax terms, put the gap in dollars, and explain what it purchased.
Get a GF520 Unit 1 example written to your instructions
Tell us which funding decision you watched at work, or pick one from the prompt, and attach the GF520 Unit 1 discussion instructions with the rubric. The custom sample post prices both rates after tax and shapes its replies to your section's peer-response rule. The first one costs nothing and typically arrives in 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF520 Unit 1 questions, answered
What if I have never seen my employer's financing decisions?
Most employees never see the loan documents, and the post does not need them. Public companies disclose borrowing in their filings, and local news often reports a hospital bond issue or a warehouse financed with debt. Its trucking firm is a composite, with figures of the kind a finance clerk or manager might plausibly see; your own post can use any decision you can describe honestly.
Why convert both rates to after-tax terms?
Because the firm experiences them after tax. Interest on the loan reduces taxable income, so a 7.25 percent loan costs less than 7.25 percent, and the fund's yield is taxed, so the cash earns less than 4.1 percent. Comparing pre-tax figures overstates the gap. Graders in finance courses notice this early, and it sets up the after-tax cost of debt used later in the term.
Where can I find a free GF520 Unit 1 sample paper?
You can read a complete GF520 Unit 1 discussion post on a trucking firm's loan-versus-cash decision here, with after-tax rates, the cost in dollars, two replies and APA 7 references.
Why is the loan's after-tax cost 5.44 percent?
Interest is deductible, so at a 25 percent tax rate each dollar of interest costs the firm 75 cents. Multiplying 7.25 percent by 0.75 gives about 5.44 percent.
Wouldn't issuing shares have avoided interest?
It would have avoided interest but not cost. Shareholders expect a higher return than lenders because they bear more risk, and the firm gets no tax deduction for what it pays them, so equity is usually the most expensive source.