1. Explain whythe present value of a cash flow stream, and the asset associated therewith;fluctuate in value with the level of interest rates in the capital markets. 2. List and explain the points...

Financial Management
1. Explain why the present value of a cash flow stream, and the asset associated therewith;
fluctuate in value with the level of interest rates in the capital markets.
2. List and explain the points of financial impact on a company if it raises the credit
standards required of its customers who utilized trade credit offered by the company.
3.
Define Weighted Average Cost of Capital and explain why a company must earn at least its
Weighted Average Cost of Capital on new investments. What are the financial implications
if it does not?
Solution:-
1) Present value of cash flow stream and the assets associated therewith fluctuates in value
with the level of interest rates in the capital market due to the time value of money. Change in
the interest rate will change the present value of money. Time value of money is explained as
follows.
Time value of money concept tells us about the diminishing value of money which is caused due
to many factors such as inflation, rising interest rates etc. Time value of money concept is very
useful in capital budgeting techniques, without the time value of money concept the capital
projects cannot be evaluated appropriately.
Thus we can say due to...