Principle of self liquidating debt
.02/.98 (sum to 1) x 1/20/360that's 1 over 20/360, where 20 is the number of days that the interest is in effect--no interest for 10 days, interest for 20 out of 30 days, then use 360 day year.This = 36.73%The PV of the first payment is the full amount.Basically, this measures the number of days to go from cash through inventory and accounts receivable, back to cash.lower.Since the higher the interest or discount rate, the more that is counted as interest, the less there is in present value.Generally, firms that issue more debt would have higher (financial) risk than firms financed entirely by equity. A firm which utilizes only equity financing would face business risk.Therefore, a firm which utilizes only equity financing would not have financial risk. Business risk derives from the broad, macro-risk a firm faces largely as a result of the relationship between the firm and the environment in which it operates.This type of risk is most closely associated with elements of the macroeconomic environment in which a firm operates and would include, for example, interest rate risk and inflation risk.
Thus, operating cycle is the sum of the co's number of days' sales in inventory plus the number of days' sales in trade accounts receivable.From this, subtract the cost of the original investment. NPV and CBR are the preferred methods of evaluating projects This guideline (also called the principle of self-liquidating debt) holds that long-term or permanent investments in assets should be financed with long-term or permanent sources of capital and short-term needs should be financed with short-term sources of financing. property, plant, and equipment, among others) and permanent amounts of current assets (e.g.level of accounts receivable and inventory generally on-hand) should be financed with long-term debt or equity.Goal congruence are when the goals of indivs are consistent with the goals of the org; incongruence = goals of indiv (mgrs) incons w/goals of org--eg PDG, each dept head tries to max own rev so the transfer prices they arrange are not in the optimal interest of the org as a whole (relevant to transfer pricing)Transfer Price per Unit = Additional Cost Outlay per unit Opportunity Cost per unit.Additional cost outlay = variable production costs incurred plus storage, frt, sg&a.
In factoring of accounts receivables, the receivables are sold at a discount for cash to a factor.