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Maturity of assets, stock prices and cost of capital

1. As a general rule, the maturity of assets should be matched with the maturity of the financing. When (if ever) do you think financial managers should deviate from this principle?

2. In theory, stock price is based on the present value of future cash flows. Could you use this principle to explain the stock price of a start-up company whose stock is newly offered in the market?

3. In your opinion, would a CEO ever decide to implement a suggested project when the financial analysis showed that its IRR was below the cost of capital? Why or why not?

4. Knowing something about financial news, give your views on the following two-part question: How has information about Enron Corporation shed new light on (a) the Efficient Market Hypothesis; and (b) the role of investment bankers?

5. Your company is considering two different financing plans. The CEO says "Pick the plan with the least amount of debt", and then asks for your comment. What would you tell the CEO?

6. Please give your opinion and support what you say with convincing reasons: Suppose that you are a financial manager with a US firm, and your company has just announced that it plans to begin operating in foreign countries. What do you think will be the most difficult challenges you will face in your job?


Solution Summary

Solid clear paragraph for each question posed.