Why does the value of money deteriorate if received in the future instead of the present

| January 30, 2017

Question
1. Why does the value of money deteriorate if received in the future instead of the present?

2. “If the EAR on a savings account is given to be 4.848% then the monthly rate is 0.404%.” Is this statement correct or incorrect? Explain your answer.

3. What is “loan covenant”? How may you distinguish between positive & negative covenants?

4. What is an Initial Public Offering (IPO)? What are its various advantages & disadvantages?

5. Discuss the major limitations of the dividend discount model of share valuation.

6. Using suitable examples,demonstrate the difference between systematic and unsystematic risk.

7. Why is the standard deviation considered to be an appropriate measure of total risk

8. According to the CAPM, the expected return on a risky asset depends on three components. Define each of these three components and explain the meaning of a beta value of 1?

9. State the payback period method. What are the main drawbacks of the payback period method?

10. Under what scenarios can an IRR result conflict with that of NPV? Howis this resolved?

11. What is capital budgeting? What are its major objectives?

12. Explain the concept of depreciation tax shield in the context of a capital budgeting exercise.

13. State the Modigliani and Miller Proposition I with as well as without taxes.

14. Argue how having debt in capital structure might be a mitigating factor for agency costs.

15. What is meant by indirect costs of financial distress?

16. If dividends are an important part of the expected future cash flows for the shareholder, how can one argue that dividend policy of a firm is irrelevant in terms of its impact on the share value

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