Questions Regarding Corporate Investment Analysis
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Ch 1-12
Explain why you would change your nominal required rate of return if you expected the rate of inflation to go from 0 (no inflation) to 4 percent. Give an example of what would happen if you did not change your required rate of return under these conditions.
Ch 2-9
You are a wealthy individual in a high tax bracket. Why might you consider investing in a municipal bond rather than a straight corporate bonds from a rapidly, even though the promised yield on the municipal bond is lower?
Advanced Corp Fin.
Discuss the relationship between the corporation's management, owners, and investors, and the DuPont identity (interaction between profitability and return on equity of a corporation). Focus on the performance of the corporation's management and the use of ratio analysis to measure corporate performance; the major financial ratios, their usefulness and shortcomings in providing investors and shareholders of the true financial performance of the corporation.
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ANSWERS
Ch 1-12
First, nominal rate is the rate of return that is unadjusted for inflation. Second, real rate is the rate of return which takes into account inflation rate. Third, without taking into account inflation rate in setting nominal rate once inflation rate goes from ZERO to 4%, then managers using the unadjusted rate risk making inaccurate decisions. For example, in evaluating a capital project, the unadjusted required rate of return is used in the computation of the project's ...
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