Firm can receive interest on uncollected payments.
Good for small firms, expensive but you can stop doing a lot of stuff.
Composition of Short-Term Financing:
Flexibility depends on the firms creditworthiness.
It also is determined by how eas
type of what if uncertainty:
analysis in which variables or assumptions are changed from a base case
This is in order to determine their impact on a projects measured results such as NPV
Info helps make decisions about what e
Mutually Exclusive Project:
one whose acceptance precludes the acceptance of one or more alternate proposals.
when deciding which mutually exclusive one to do you may get conflicting results from
the 3 methods.
That is caused by either:
favorable industry traits include positioning in the growth phase of a cycle, barriers to
competitive entry and other protective devices (patents, temporary monopoly power,
oligopoly pricing where all competitors succeed.
Assumption is that you use a hedging approach:
a method of financing where each asset would be offset with a financing instrument of
the same approximate maturity.
Explicit cost of debt can be derived by solving for the discount rate kd:
that equates the
Discounted cash flow methods allow us to capture differences in the timing of cash
flows for various projects through the discounting process.
Also, through choosing the hurdle rate we can see which project is riskiest.
3 methods are internal rate of retu
Cost of Equity:
Capital-Asset Pricing Model Approach
Solve the problem directly by estimating the required rate of return on the companys
Estimating future dividends: major difficulty in estimating costs of equity capital is
a situation where a constraint (or budget ceiling) is placed on the total size of capital
expenditures during a particular period.
If capital is rationed only to the current period:
then the problem is reduced to selecting projects that
Accounts Receivable Backed Loans
- back loan with accounts receivable.
Firms lie and there are processing expenses.
Typically advance 50 to 80% on good accounts.
Needs to be as few accounts as possible (25%).
Nonnotification people dont know accounts rece
if the NPV is 0 or more it is accepted.
Another way of saying it, if present value of cash inflows exceeds the present value of
If required rate of return is chosen correctly, total market price of firms stock should