Answers: Financial Management

1550 WordsFeb 26, 20147 Pages
Name: Wijnant van den Hoogen Course: Fin 3010-02 ------------------------------------------------------------------------------------------------- Chapter 7. QUESTIONS 1. What, in general, is meant by off balance sheet financing? A form of financing in which large capital expenditures are kept off of a company 's balance sheet through various classification methods. Companies will often use off-balance-sheet financing to keep their debt to equity (D/E) and leverage ratios low, especially if the inclusion of a large expenditure would break negative debt covenants. Leasing became the leading form of off-balance sheet financing - using an asset without reflecting it or its financing on the balance sheet. Source:…show more content…
First take the present value of the residual at the rate implicit in the lease PV = FV[PVFk,n] = $300,000[PVF1,180] = $300,000(.1668) = $50,040 Subtract that from the initial investment $1,500,000 - $50,040 = $1,449,960 And find the required annuity payment PVA = PMT[PVFAk,n] $1,449,960 = PMT[PVFA1,180] $1,449,960 = PMT(83.3217) PMT = $17,402 Source: 344-346 Chapter 8. QUESTIONS: 1. Discuss the nature of stock as an investment. Do most stockholders play large roles in the management of the firms in which they invest? Why or Why not? The return on a stock investment comes from dividends and price appreciation. Although neither is guaranteed, both have the potential for growth in the future. This is in distinct contrast to investments in debt vehicles that guarantee future payments but offer little or no possibility of a return that 's higher than promised. Although stock implies ownership, few equity investors expect to play a role in running the companies whose shares they buy. Such firms are widely held, and few stockholders have large enough blocks of stock to influence management decisions. In small business, of course, owners usually run their companies. Source: page 360-361 2. Compare and contrast the nature of cash flows stemming from an investment in stock with those coming from bonds. The cash flows associated
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