Principles of Finance for the Private Sector

1. The objective of a corporation is to maximize shareholder wealth. How is a corporation similar and
different compared to a partnership in the area of maximizing wealth?

2. It is important for companies, particularly retailers, to have strong liquidity. How does the current
ratio compare with the quick ratio and why would these two ratios be important for retailers?

3. Depreciation is a non-cash charge. What are some of the different depreciation methods commonly used? How
does the depreciation impact net profit and cash flow?

4. Present values are negatively impacted by higher interest rates. How does compounding compare with
discounting? How does the future value of an annuity compare with the future value of a lump sum?

5. Long-term bonds face interest-rate risk; short-term bonds face reinvestment-rate risk. How is the value
of a typical corporate bond determined?

6. It is important for managers to accept positive NPV projects. What are some problems with the IRR
methodology compared to the NPV methodology

7. A company’s cost of capital is impacted by the company’s financing choices. What are the advantages and
disadvantages of using debt financing compared with equity financing?

8. Google does not currently pay any common stock cash dividends. Why do some companies pay common stock
cash dividends whereas other companies do not?
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