INTRODUCTION
In 1961, the Belgian economist Robert Triffin described the dilemma faced by the country at the center of the international monetary system.1 To supply the world’s risk-free asset, the center country must run a current account deficit and in doing so become ever more indebted to foreigners, until the risk-free asset that it issues ceases to be risk free. Precisely because the world is happy to have a dependable asset to hold as a store of value, it will buy so much of that asset that its issuer will become unsustainably burdened. The endgame to Triffin’s paradox is a global, wholesale dumping of the center country’s securities. No one knows in advance when the tipping point will be reached, but the damage brought about by higher interest rates and slower economic growth will be readily apparent afterward.
For a long time now, the United States has seemed vulnerable to the fate that Triffin predicted. Since 1982 it has run a current account deficit every year but one, steadily piling up obligations to foreigners. Because foreigners have been eager to hold dollar assets, they have willingly enabled this pattern, pouring capital into the United States and financing the nation’s surplus of spending over savings. The dollar’s
In the case of Worldwide Paper Company we performed calculations to decide whether they should accept a new project or not. We calculated their net income and their cash flows for this project (See Table 1.6 and 1.5). We computed WPC’s weighted average cost of capital as 9.87%. We then used the cash flows to calculate the company’s NPV. We first calculated the NPV by using the 15% discount rate; by using that number we calculated a negative NPV of $2,162,760. We determined that the discount rate…
Case Study 2: Rocky Mountain Advanced Genome This paper provides an objective valuation of Rocky Mountain Advanced Genome (RMAG) to be adopted by Big Sur regarding the purchase of a 90% equity stake for $46 million. Forecast Horizon: The forecast horizon was lengthened to 15 years, as RMAG is a young, “highly promising, high risk” firm, only established 15 months prior, it should reach maturity in 2010 as sales, expenses and free cash flows stabilise (Fig.1). RMAG exhibits characteristics of…
OF CASH FLOW Free Cash Flows (p. 1459): net operating cash flows reduced by the capital expenditures needed to sustain current level of operations. For the year ended….. Three sections: show source and uses of cash. 1. Operating cash flows are associated with the day-to-day activities (I/S) and working capital (B/S): current assets and current liabilities with exceptions (ex: dividend payable and short term loans) Direct method: start with IS item and adjust for change in related working capital…
Corporation 1. Briefly provide a synopsis of the case and clearly describe the main problem raised in the case. (10 points) American Chemical, a diverse chemical company in the late1970s, wanted to acquire, through a share buyout, Universal Paper Corporation. Universal sued them on the stance that it would violate an antitrust law, because its sodium-chlorate production division would digest Universal’s large division creating a lack of competition in the Southeast United States. To alleviate…
REPLACEMENT DECISION Teaching Note Synopsis and Objectives The owner of a midsize folding carton printer is considering the replacement of an old machine for cutting sheets of paper from rolls (a sheeter) with a new one. This standard capital budgeting analysis, which requires identification of both the relevant cash flows and the relevant discount rate, is enhanced by an alternative that is not explicitly stated but can be readily identified and analyzed—to outsource all sheeting and close down…
Introduction In this paper team d will compare and contrast the capital asset pricing model and the discounted cash flows model. The paper will also evaluate the debt/equity mix and the dividend policy. In addition, it will describe several characteristics of debt and equity as well as the cost. In closing, the paper will evaluate the various long-term financing alternatives such as bonds, stocks and leases. Long-Term Financing The capital asset pricing model (CAPM) is “a model…
Introduction Working capital management ensures a company has sufficient cash flows to meet short-term debt and operating expenses (Ehow, 2011). Companies must understand the importance of working capital management and how it affects daily operations. One of the most important features of working capital is the ability to plan a company’s cash flow. Working capital gives investors a good idea of a company’s operational efficiency (Ehow, 2011). Also implementing an effective working capital management…
to produce. There is an expectation of no changes to the indirect cost, a purchase and install cost of $3,000,000, and a tax rate of 34%. This paper will explain the straight-line method for depreciation, the weighted average cost of capital (WACC), as well as net present value (NPV), the internal rate of return (IRR), and the payback period. This paper will discuss and analyze the appropriate tools to determine if the company should purchase the new equipment and how the decision was arrived at…
Week 4 Individual Assignment | Simulation Review Paper | HCS/405 Health Care Financial Accounting | My strategy will consist of three phases. These phases include: capital shortage, funding options for equipment acquisition and funding options for capital expansion. During these three phases I will observe the necessary financial statements and documents. From this information I will analyze the information and decide the best strategy for improvements. I will not only focus on…
Financial Structure and International Debt ( Questions 1. Objective. What, in simple wording, is the objective sought by finding an optimal capital structure? When taxes and bankruptcy costs are considered, a firm has an optimal financial structure determined by that particular mix of debt and equity that minimizes the firm’s cost of capital for a given level of business risk. If the business risk of new projects differs from the risk of existing projects, the optimal mix of debt and equity…