13 Jan Which capital investment

FIN350 Week 1 Discussion 1 & 2 Latest 2017 June

dq 1

Identify a party (other than stockholders) that can be classified as a stakeholder for a corporation. What obligation does the corporation have to this party? Describe a situation where stockholder claims on the organization might conflict with the claims of this stakeholder group. If you were CEO, how would you resolve these conflicts?

dq 2

During the summer and fall of 2008, the U.S. financial system and financial systems around the world appeared to be on the verge of collapse. How did we get into this condition? What did we do to get out of it? How can we prevent another such scenario in the future?

FIN350 Week 2 Discussion 1 & 2 Latest 2017 June

dq 1

Individuals performing ratio analysis include (1) banks evaluating potential loan applications from small businesses, (2) investment analysts evaluating the investment quality of a firm’s stock, and (3) internal management, assessing the firm’s current strengths and weaknesses. Select one of the three parties above, and for that party, identify which of the five ratio groups (liquidity, activity, debt, profitability, or market) would be of most value and which would probably be of least value. Explain the reasons behind your choices.

dq 2

What is an advantage that the Du-Pont system of analysis offers over traditional ratio analysis? (Try and identify something original that your classmates have not yet mentioned.) Are there any disadvantages? Does the Du-Pont system analyze performance in each of the five main ratio groups? Explain.

FIN350 Week 3 Discussion 1 & 2 Latest 2017 June

dq 1

Is it possible for a firm to have a positive profit and yet have a negative cash flow? Describe a scenario under which this might occur? Where does the money from profits go in such a case?

dq 2

If you were to examine the cash budgets of almost any organization, you would find distinct seasonal patterns of cash inflows and outflows. These patterns cause months during the year when almost every business is flush with cash, and other months in which things are extremely tight. Select an organization in which you are (were) employed, and describe the seasons of the year when this firm was flush with cash and the seasons when this firm was typically on a tight budget. Why did these times occur?

FIN350 Week 4 Discussion 1 & 2 Latest 2017 June

dq 1

One of the basic financial principles is that the value of any asset (whether it be a stock, a bond, or a firm as a whole) is the present value of that asset’s future cash flows. As you learned in this chapter, finding present values requires determining a discount rate. Assume you want to buy a business, and you want to find the present value of its future cash flows. Name at least one variable you should consider in determining the correct discount rate to use and explain its role in discount rate determination. If possible, try to identify a variable that has not yet been mentioned by your classmates.

dq 2

Look at the Focus on Ethics box (“How Fair Is Check Into Cash”) in Chapter 5 of the textbook. These, businesses quote an interest rate of 15% to loan customers (most of whom are fairly unsophisticated) and yet the EAR of the loan is close to 400%. Explain the wide discrepancy between these rates. What do you believe is the correct regulatory response to these types of lenders?

FIN350 Week 5 Discussion 1 & 2 Latest 2017 June

dq 1

There is an inverse relationship between interest rate changes and changes in the market price of outstanding bonds. Explain the logic behind this principle. Given this relationship, do you believe it is currently a good time to buy bonds? Why or why not?

dq 2

Agencies such as Moody’s, Fitch, and Standard & Poor’s rate the default risk of various municipal and corporate bonds. While their rating systems are proprietary, it is widely known that they rely on financial ratios as key inputs to their bond ratings. Which financial ratios (list at least two) do you believe would be the most helpful to rate corporate bonds? Why?

FIN350 Week 6 Discussion 1 & 2 Latest 2017 June

dq 1

Several stock valuation models were described in the chapter, including zero-growth, constant growth, variable growth, free cash flow, book value, and P/E multiple models. Which of these do you believe would generate the most accurate value estimates for most firms? Explain your choice.

dq 2

Read the Focus on Ethics box (“Psst! Have You Heard Any Good Quarterly Earnings Forecasts Lately?”). Explain what quarterly earnings guidance is, and what purpose it is supposed to serve. If you were a corporate CEO, would you discontinue this practice? Why or why not?

FIN350 Week 7 Discussion 1 & 2 Latest 2017 June

dq 1

Diversification occurs when stocks with low correlations of returns are placed together in a portfolio. Identify at least one type of firm that might exhibit low correlations of returns with the overall stock market? Explain why the correlations of these firms are expected to be low.

dq 2

In general, the cost of debt capital is lower than the cost of equity capital. For this reason, it might be expected that firms with high debt ratios would have a lower weighted average cost of capital. Explain at least one reason why this is not the case.

FIN350 Week 8 Discussion 1 & 2 Latest 2017 June

dq 1

Which capital investment technique does the discussion in the textbook favor? Why? Do you agree with this assessment?

dq 2

Assume your firm has multiple investments to consider each with differing risk levels. How can differing risk levels be incorporated into NPV analysis? How can they be incorporated into IRR analysis?