Relationship between firm value and discount rate

Reference no: EM133655468

Chapter 3

1. Discuss the relationship between firm value (as measured by NPV) and the discount rate?

2. Suppose that a change in short-term financial management practices results in a NPV of $250,000. How should management interpret this value? Would your answer change if the NPV was -$250,000?

3. How does the operating cycle influence the NPV of the gross profit earned for a given credit sale?

4. How does DPO influence the NPV of the gross profit earned on a given sale?

5. If ΔNPV is positive, then what does this indicate about the change in the CCC and the aggregate change in firm value, assuming repeat sales?

6. What factors should management consider when choosing the discount rate to use in the calculation of NPV for changes in the CCC?

7. Describe the relationships between the following variables: a. CCC and WCR

b. WCR and interest expense c.Interest expense and EPS d. EPS and share price (estimated with the P/E multiple)

8. In your own words, describe how multiplying average daily revenues by DSO provides a valid estimate of receivables.

9. How would you describe the relationship between firm value and CCC that is reported by academic research?

Reference no: EM133655468

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