BUS401 Business Finance
Instruction : Please answer 3 questions, of which Question 1 is compulsory. All questions carry equal marks. Please do not write over 2000 words for the entire assignment.
- Eli Lilly is very excited because sales for his nursery and plant company are expected to double from $600,000 to $1,200,000 next year. Eli notes that net assets (Assets — Liabilities) will remain at 50 percent of sales. His firm will enjoy an 8 percent return on total sales. He will start the year with $120,000 in the bank and is bragging about the Jaguar and luxury townhouse he will buy. Does his optimistic outlook for his cash position appear to be correct? Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 50 percent of the sales increase) and add in profit.
- In problem 1 if there had been no increase in sales and all other facts were the same, what would Eli’s ending cash balance be? What lesson do the examples in problems 1 and 2 illustrate?
Argue why are Treasury bills a favorite place for financial managers to invest excess cash, as compared to other options? Your answer must be supported with examples and academic citations.
Discuss the relationship between bond prices and interest rates. What impact do changing interest rates have on the price of long-term bonds versus short-term bonds? Your answer must be supported with examples and academic citations.
Why are institutional investors important in today's business world? Your answer must be supported with examples and academic citations.
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