CAPITAL BUDGETING AND CAPITAL STRUCTURE

Trident University

FIN301: Principles of Finance

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Module 1: Case Template

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Question 1: In your small business you have a finance department with a CFO, controller, and treasurer. For the following scenarios, explain which of these three financial executives would be the most likely to work on the issue based on the descriptions of the roles of the CFO, controller, and treasurer from Brealey, et al. (2009) from the required reading.

  1. You suspect that a lower-level employee has embezzled around $50,000 over the last three years and you want to try to find out who based on past financial records. Who would be most likely person to look into this issue – the CFO, the treasurer, or the controller? Why?

ANSWER:

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  1. Your chief marketing officer wants to take out a large loan to finance a major advertising campaign that he claims will bring in large sums of new profits over the next few years. However, your chief operating officer wants to take out a large loan to purchase some new equipment and machinery that she claims will save your company a lot of money over the next few years. You would like to see some estimates about which of the two projects will be most likely to increase profits enough to be able to pay back the loan. Who would be most likely person to look into this issue – the CFO, the treasurer, or the controller? Why?

ANSWER:

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Question 2: Explain whether the following assets are a real asset or a financial asset. Explain your reasoning using the definitions of real versus financial assets in Brealey, et al. (2009) from the required reading.

  1. A certificate of deposit at your local bank

ANSWER:

☐Real Asset

☐Financial Asset

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  1. A two-bedroom house

ANSWER:

☐Real Asset

☐Financial Asset

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  1. $50,000 worth of bonds from an airline company

ANSWER:

☐Real Asset

☐Financial Asset

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  1. Ownership of a copyright to a hit song

ANSWER:

☐Real Asset

☐Financial Asset

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Question 3: Complete financial research on Facebook and General Motors using a web page such as investing.com or finance.yahoo.com or Bloomberg.com. Based on their stock’s P/E ratios, dividend yields, and other information, compare and contrast these two stocks. How would you classify these stocks: growth stock, a value stock, or an income stock? Explain your reasoning using both concepts from the background readings as well as any information you find on these two companies. Your answer should be about 100 – 150 words and can use graphs or calculations.

ANSWER:

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