FIN 4260 Chapter 3_SLIDES

FIN 4260 Chapter 3_SLIDES - 1 Part I - Introduction to...

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Part I - Introduction to Liquidity Chapte rs Covere d Chapter 1 The Role of Working Capital Chapter 2 Solvency, Liquidity & Financial Flexibility Chapter 3 Valuation 1
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Cost of Cash Conversion Period 2 Let’s first establish the cost of working capital. Assume a firm offers standard 30-day credit terms (it gets paid for sales 30- days after the sale is made). Assuming average daily sales are $200,000 and the cost of capital is 10%, what is the annual cost of extending credit ?
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Valuation of ST Cash Flows 3 Each component of working capital (inventory, receivables, payables) has two dimensions  time and money . It might seem that valuing present year cash flows is not meaningful. However, financial policy decisions that are permanent are meaningful. ST financial decisions can impact firm value
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Valuation of ST Cash Flows 4 A widely-used valuation method is the Net Present Value (NPV) approach.
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This note was uploaded on 01/19/2012 for the course FIN 4260 taught by Professor Victorwakeling during the Spring '12 term at Kennesaw.

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FIN 4260 Chapter 3_SLIDES - 1 Part I - Introduction to...

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