Questions on Financial Management

Discussion Question 2 – CLO 1, CLO 2, CLO 5

Please answer each of the following questions in detail and provide in-text citations in support

of your argument. Include examples whenever applicable.

a. Explain the major financial ratios and financial cycles, debt ratio, debt to equity ratio,

return on assets, return on equity, current ratio, quick ratio, inventory turnover, days in

inventory, accounts receivable turnover, accounts receivable cycle in days, accounts

payable turnover, accounts payable cycle in days, earnings per share (EPS), price to

earnings ratio (P/E), and cash conversion cycle (CCC) and state the significance of

each for financial management. Include examples based on a hypothetical balance

sheet and income statement.

b. Can CCC be negative? If so, what does it indicate?

c. Explain working capital and its significance. Evaluate working capital in your example

given in part “a” of this DQ2.

Discussion Question 3 – CLO 1, CLO 2, CLO 3, CLO 4, CLO 5

Please answer each of the following questions in detail and provide in-text citations in support

of your argument. Include examples whenever applicable. Make sure to provide examples for

each of the questions below.

a. Discuss how time value of money in the context of compounding interest.

b. Explain what an annuity is and what are the two most common types of annuity. Explain

how the present value and future value of an annuity is determined.

c. Extend the notion of compounding mentioned in your answer to part “a” above to

general situations where compounding is induced by growth, inflation, or deflation.

Discussion Question 4 – CLO 1, CLO 2, CLO 3, CLO 4, CLO 5

Please answer each of the following questions in detail and provide in-text citations in support

of your argument. Include examples whenever applicable. Make sure to provide examples for

each of the questions below.

a. Describe and explain the significance of each of the following: payback period, internal

rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV),

and profitability index (PI). Explain. Provide examples for better clarity.

b. Discuss the notions of conventional and nonconventional cash flows in capital

budgeting. Which investment evaluation criteria would you use for unconventional cash

flows and why? Provide a fictitious unconventional cash flow example and apply the

payback period, NPV, IRR, MIRR, and PI methods to your example. Interpret the

results.

Discussion Question 5 - CLO 1, CLO 2, CLO 3, CLO 4, CLO 5

Please answer each of the following questions in detail and provide in-text citations in support

of your argument. Include examples whenever applicable. Make sure to provide examples for

each of the questions below.

1. Please explain the determining factors of the interest rate and make sure to include

hypothetical examples for better clarity.

2. Describe the meaning of the yield curve. Verify how the shape of the yield curve

provides predictions on the economy in future years. Please visit the US Governments’

Treasury site, retrieve the data on the U.S. treasury rates and construct the yield curve.

Indicate the date of retrieving the data.

3. Please explain the terms associated with the bonds, namely, corporate bond, municipal

bond , treasury bill, par value, coupon rate, coupon payment, time to maturity, prevalent

interest rate, market value and yield to maturity (YTM).

4. Explain and provide examples of how variations in the prevalent interest rate affects

market value of a bond.

5. Explain how you would value a stock. Provide an example of valuation of a stock based

on retrieved real data. Include evidence of the retrieved data in your answer. Compare

your valuation with the actual price of the stock at the designated time for your

valuation.

Discussion Question 6 – CLO 1, CLO 2, CLO 3, CLO 4, CLO 5

Please answer each of the following questions in detail and provide in-text citations in support

of your argument. Include examples whenever applicable. Make sure to provide examples for

each of the questions below.

1. Please explain the risk vs. expected rate of return tradeoff, the security market line, and

determination of beta on this basis. Include explanation of all the constituents namely,

security market line, risk measure, expected rate of return, risk-free rate of return, and

market rate of return. Include hypothetical examples for better clarity.

2. Explain the weighted average cost of capital (WACC) and its significance and include

hypothetical examples for better clarity.

Discussion Question 7 – CLO 1, CLO 2, CLO 3, CLO 4, CLO 5, CLO 6

Please answer each of the following questions in detail and provide in-text citations in support

of your argument. Include examples whenever applicable. Make sure to provide examples for

each of the questions below.

1. Explain the criteria for assessing performance of a security, namely, expected rate of

return, standard deviation of rate of return, and coefficient of variation (CV). Explain how

by forming a portfolio an instrument can be generated that has properties better than

each of its constituents in terms of the standard deviation of rate of return and CV.

2. Please, consider the information you obtained in answering part 1 of the PA2 in week 6

again . Suppose that the corporation is offered an investment which has the following

cash flows. Please justify if the project is feasible based on WACC that you calculated

in your PA2.