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Assignment 2: Business Financing and the Capital Structure
Finance & Accounting
Pages 3 (753 words)
1.Explain the process of financial planning used to estimate asset investment requirements for a corporation. Explain the concept of working capital management. Identify and briefly describe several financial instruments that are used as marketable securities to park excess cash.
With this information, the payback period may be estimated for a rough expectation of when the investment would break even. Other methods will necessitate the estimation of the cost of money which would serve as the discount rate for time-value-of-money estimations. On the basis of this discount rate, the present values of cash inflows and cash outflows should be calculated and offset to determine the net present value, or the ratios thereof taken for the profitability index. Finally, the internal rate of return can be acquired through the hit-and-miss estimation method. Working capital management is based on maintaining appropriate levels of current assets and current liabilities, in such a way as to provide for the timely fulfillment of short-term debt obligations and operating expenses without holding excessive amounts of liquidity that otherwise could be invested. Excess cash may be invested in short term financial instruments (marketable securities) could include short-term debt instruments such as treasury bills and commercial papers, deposits and certificates of deposit, commercial papers, short-term interest rate futures and forward rate agreements. ...
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