Explain whythe present value ofa stream ofcash flowand



1. Explain whythe present value ofa stream
ofcash flowand assetsassociated therewith, fluctuate in valuewith the level
ofinterest ratesinthe bond markets.

2. List and explainthe points offinancial
impact ona companyif it increasesthe required standardsof credit
totheircustomers usingtrade credit providedby the company.

3.Set theAverage
CostofCapital(WeightedAverage CostofCapital)and explain whya company mustearn
at leastitsweighted average cost ofcapital on new investments. What are thefinancial
implicationsif it does?

4.As a corporationwhat are
thebenefits and consequences ofthe use ofconvertibledebt areto finance
apublicly tradedcompany? As an investor, what are
the benefits andramifications ofthe purchase
ofconvertibledebtin apublicly tradedcompany? Are there
conflictsbetween the objectivesof the investor andthecompany goals?

5.Which twoof the sixmethods used
toevaluate projects,and decidewhether or not tobe acceptedas CFOyou prefer?
Explain why youdecidedon the twoandnotthe other four.List
theperceived shortcomingsof the four whowere not selected.

6.What are thebenefits and costs ofplacing acompany
withfinancial problemsin a Chapter11Bankruptcy? Is this alegitimate
andethicalmanagementvehicleto use forthe benefit ofthe stakeholdersof the

7.Youjust graduatedfrom theMBA program
atKeiserUniversityandhasgottena job asmanager of afund managedby
aprestigiousinvestment bankingfirm. You have beengivena portfolio of $300 million tomanage
and invest. The fund’s pensionandretirementandlong-termforwardisat
moderate risk ofcapital lossandrequiredan annualincomeof9%.Toreduce the riskof
investmenthave giveninstructions tomake 12investments of $25 milliondollars
each.Your first task isto determine whetheryou are administeringthe fundmust
invest$ 25millionincompany stockyou have selected foryour first decisionto

Explain whythe present value ofa stream ofcash flowand
Explain whythe present value ofa stream ofcash flowand

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Tutorial Preview
…we xxx after x year, the xxxxxx received will xx $952 xxxxxxx xxxx interest xxx at 5%) xx there is xxxxxx in xxx xxxxxxxx rate, xxx if we xxxx to get xxxxxx today, xxxxx xx get xxxxx a year, xxx amount received xxxx be xxxx xxxxxxx less xxxxxxxx $38 at xxx Thus we xxx observe xxxx xxxx the xxxxxx in rate xxx present value xxx accordingly xxxxxxxx xx the xxxxxxxx amount will xxxxxx In Bond xxxxxxx the xxxxxx xxxx of xxxxxxxx will change xxx price of xxx bonds xxx xxxxxx rate xx bond interest xxxxxxx same, however xxx market xxxx xxxxxxxxx If xxx coupon rate xx 10% and xxx market xxxx xx 8%, xxx bonds will xx sold at x premium, xxxxxxx xxx bonds xxx paying more xxxxxxxx than market xxxxxxxxxxxx However, xx xxx market xxxx of interest xx 12% and xxxxxx rate xx xxxx the xxxxx will be xxxx at a xxxxxxxx in xxx xxxxxx And xx the market xxxx is also xxx and xxxxxx xxxx is xxxx these bonds xxxx be sold xx par x xxxx and xxxxxxxxxx points offinancial xxxxxx ona companyif xx increasesthe xxxxxxxx xxxxxxxxxxx credit xxxxxxxxxxxxxxxx usingtrade credit xxxxxxxxxx the company x company xxxxxxxx xxxxx credit xx the customers, xx per the xxxx limits xxxxxxxxx xx the xxxxxxxx The credit xxxxx of the xxxxxxxx is xxx xxxxxx credit xxxxxx extended by xxx company and xxx competitors xx xxx company xxxxxxx to increase xxx standards of xxxxxx limit, xx xxxxxxxxx…

22001.docx (19.49 KB)Preview: means xx finance xx to attract xxx investors The xxxxxxxxx prefer xxxxxxxxxxx xxxxx than xxxxxxxxxxxxxxx This gives x right to xxx bondholder xx xxxxxxx their xxxxx in common xxxxxx The advantage xx bondholder xx xxxx after xxx period of xxxxx when bonds xxx converted xxxx xxxxxx the xxxxxxxxxx becomes a xxxxxx stockholder The xxxxxxxxx of xxxxxxxxxxx xxxx is xxxx the debt-holders xxx only the xxxxx interest xxxxxxxxxxxxx xxxxx is xxxxxxxx as an xxxxxxx for tax xxxxxxxxx Hence xx xxx company xx in 35% xxx bracket, the xxxxxx cost xx xxxxxxxx is xxxx 65% The xxxxxxxxx with weak xxxxxx ratings xxxxxxxx xxxxx convertible xxxxx Hence the xxxxxxxx needs to xx see xxx xxxxxx ratings xxx future growth xxxx of the xxxxxxx Further xxx xxxxxxxx stockholders xxxx bad as xxxx the increase xx number xx xxxxxxx the xxx income will xx divided in xxxx shareholders xxxxx xxx earnings xxx share will xxxxxxxx Moreover, since xxxx can xx xxxxxxx / xxxxxxxx to large xxxxxxxxxx like mutual xxxxxx insurance xxxxxxxxx xx investment xxxxxxxx they can xxx hold of xxxx number xx xxxxxxx and xxx get more xxxxxx / control x voting xxxxxx x Which xxx of the xxx methods used xx evaluate xxxxxxxxx xxx decide xxxxxxx or not xx be accepted xx CFO xxx xxxxxxx Explain xxx you decided xx the two xxx not xxx xxxxx four xxxx the perceived xxxxxxxxxxxx of the xxxx who xxxx xxx selected xxx two methods xx be preferred xxxxxxx present xxxxxxxxxxxxx xxxx of xxxxxxxxx present value xx a method xxxx indicate xxx xxxxx of xxxxxxxxxx cash flow xx be received xxxx clearly xxxxxxxxx xxxx the xxxxxxxxxx cash flow